Archive for August, 2007
August 31st, 2007
David Bush - Iasta
Here, rolling into a holiday weekend, I took time to remember brothers-in-arms, who had fallen along the way. One of the funniest things I have ever seen a company in eSourcing do, was when PurchasePro launched a TV ad campaign. I will always remember standing in my kitchen with CNN on and the ad came on.
It had a bunch of goofy actors standing in a room (looking like they just hit the lottery) and one was standing at a podium with a auctioneers gavel. During the 30 second spot, PPRO put our industry’s credibility back 5 years and it looked like the ad was filmed with a camcorder in a one day shoot. It is one of the WORST commercials ever made. I really dont think any one can argue with me on that. Not only was it low budget, but it made no sense and I only understood because I knew what PurchasePro did.
I remember my initial reactions (after shock and amazement) were to think:
- O My God, these guys are making so much money they are advertising during Aaron Brown??? That lasted about 60 seconds. Then came..
- These guys are idiots, this will never work.
Ultimately, I think the results speak for themselves. I am dying to know if any one else ever saw those commercials and what they thought. It was a classic moment in the history of supply management.
Entry Filed under: General, e-Sourcing Marketplace
August 30th, 2007
Michael Lamoureux
The Global Trade import and export cycles are quite involved, each involving at least 14 steps, which can be summarized as follows.
The Global Trade Import Cycle
- Supplier Selection
- Purchase Order Generation
- Transport Insurance
- Financing
- Carrier Selection
- Document Creation
- Goods Departure
- Shipment Tracking
- Importation
- Goods Receipt
- Invoice Receipt
- Reconciliation
- Payment
- Tax Reclamation
The Global Trade Export Cycle
- Customer Approval
- Sales Order Receipt
- Order Approval
- Transport Insurance
- Receipt of Financing
- Carrier Selection
- Document Creation
- Shipment Tracking
- Exportation
- Goods Delivery
- Invoice Creation
- Payment Receipt
- Reconciliation
- Tax Reclamation
Even without a detailed description, one should be able to see that there are a number of core elements of global trade - seven to be precise - and it is through familiarity and mastery of these core elements that one becomes a master of global trade and all the benefits that can be derived therefrom.
The seven core elements of global trade are:
- Strategic Sourcing
Strategic Sourcing is a systematic corporate/institutional procurement process that continuously improves and re-evaluates the purchasing activities of a company. (Wikipedia) It one of the most important elements as the supplier selected impacts everything: the home country of the owners of the supplier corporation impacts financial status and trade restrictions, the location of the supplier impacts logistics, the supplier’s financial status impacts financing, and the supplier’s overall capability impacts quality, risk, and visibility, for example.
- e-Procurement
e-Procurement is the counterpart to e-Sourcing, starting where eSourcing ends and ending where eSourcing begins. It is the “e” implementation of the procurement cycle which is concerned with the requisitioning, receiving, and reconciliation of the received goods as opposed to the analysis, auction, and award that takes place in the sourcing cycle.
- Supply Chain Finance
Supply Chain Finance is the optimization of both the availability and cost of capital within a buyer-centric supply chain. The availability and cost of capital is usually optimized through the aggregation, integration, packaging, and utilization of all of the relevant information generated in the supply chain in conjunction with cost analysis, cost management, and various supply chain finance strategies.
- Trade Document Creation
Trade document creation is the creation of the necessary documentation to satisfy import, export, customs, security, safety, port, and carrier requirements. Numerous documents are required by government bodies, customs, ports, and carriers, just to name a few, to move your products internationally. One industry estimate has noted that a single global shipment can require approximately 35 documents consisting of over 200 data elements to be created for up to 15 different parties.
- Logistics
Logistics is determining how the goods are going to get from the point of origin to the point of destination. What methods of transportation are going to be used? Which ports? Which carriers? Which third parties are going to be contracted to assist in managing the process? Logistics can be quite involved when goods need to be exported and imported.
- Regulatory Compliance
Even though the customs, logistics, and security requirements are enough to make an average person’s head spin, there is an ever dizzying away of acts and directives that a supply management professional needs to be aware of. In addition to the attention grabbing Sarbanes-Oxley Act (SOX), especially section 404 on the management assessment of internal controls, there is the Hazardous Materials Safety (HAZMAT) in the US, the European Union (EU) Restriction Of the use of certain Hazardous Substances in electrical and electronic equipment (RoHS), the forthcoming RoHS equivalent in China and other Asian countries, and the European Commission (EC) Directive on Waste Electrical and Electronic Equipment (WEEE); there’s also the EC Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), just to name a few.
- Risk Management
Underlying each of the previous six aspects of global trade is risk. Failure to ignore Supply Risk Management today could be devastating to an organization.
For more insights on Global Trade, check out the An Introduction to Global Trade: The Basics wiki-paper over on the e-Sourcing Wiki which includes an overview of the global trade import cycle, the global trade export cycle, and the seven core elements of global trade - each of which destined to have its own (set of) wiki papers, if it does not already.
Entry Filed under: General, Global Supply Issues/Risk, e-Sourcing Marketplace
August 29th, 2007
David Bush - Iasta
There are a number of organizational, strategic, and tactical best practices that can be used to enable your e-Sourcing efforts. Applying best practices can often make the difference between a successful effort and an unsuccessful effort. Here are six best practices to get you started.
- Form a Dedicated Team
Form a dedicated sourcing team, lead by a senior officer, who follows generally accepted project management principles and processes. Truly successful strategic sourcing projects are never done on an ad-hoc or stand-alone (after-thought) project basis.
- Focus on Compliance
Companies lose large amounts of money through leakage - stakeholders do not order from the correct vendor (maverick spending) new pricing is not universally rolled out, and overbilling is not detected, for example. Successful organizations align processes, systems, and incentives to ensure compliance with sourcing plans and adopt procedures, systems, and metrics to measure internal and external performance.
- Engage Stakeholders
Engage all relevant stakeholders throughout the organization for each appropriate spend category in sourcing strategy development and constraint identification. Be sure to outline the goals, requirements, timeframes, and communicate these to internal stakeholders and external suppliers.
- Encourage Supplier Innovation
Innovative suppliers can improve processes and find new savings opportunities. Support supplier creativity through flexible bidding methods with advanced cost models, category strategies for future cost reductions in key categories, and strategic relationships.
- Develop Meaningful Performance Incentives
People are the most important part of any supply chain. Be sure to offer appropriate financial rewards based on TVM-based metrics based on measurable goals and objectives.
- Use Decision Analytics Up-Front
Use advanced decision analytics up-front to address sourcing strategies, demand management, and initial product design where as much as 80% of the final product costs are locked in. These tools should allow flexible bidding and allow for realistic comparisons on otherwise “apples to oranges” comparisons through appropriate weightings, metrics, and transformations.
For (at least nine) more e-Sourcing Best practices, see the Strategic e-Sourcing Best Practices: A Total Value Management Perspective wiki-paper over on the e-Sourcing Wiki. In addition to more best practices, it also reviews the Total Value Management approach to e-Sourcing, common barriers to success, and technology enablers.
Entry Filed under: General, Supply Management Best Practices, Technology
August 28th, 2007
David Bush - Iasta
Iasta made the Inc 610 List! Ok, technically we made the Inc 5000 List and were ranked 610th nationally, across all industries. Growth like this is tough to maintain. More importantly, growth percentages like this are tough to manage and control, so not to red line the company into head on collision with a brick wall. Fortunately, for all of our legions fans, you will not be seeing that from Iasta and we have managed hyper growth for 7 years. I highly doubt we will be this high next year because of this management discipline.
However, it is a very cool accomplishment and some things I found noteworthy were:
- Iasta is the 8th fastest growing company in Indiana - across all industries
- Iasta is the 30th fastest business services company in the country
- Iasta is the fastest growing supply management software company in the country! (Editors note: I am not 100% sure about this one, since this is not a category, but my manual search produced no others higher.)
Not too shabby for “4 guys in a garage” as we have been referred to in competitive sales.
Entry Filed under: General, Supply Management Best Practices, Technology, e-Sourcing Marketplace
August 27th, 2007
David Bush - Iasta
Every few months or so, I like to peruse the European Leaders in Procurement website, since it is very content rich and makes improvements regularly. Last week, I took notice to some interesting new areas that I, at least had not noticed previously. These are what ELP is calling Knowledge Groups and are described as:
Knowledge Groups offer a rich source of content, ideas and innovative concepts around a variety of strategic procurement areas.
The groups provide member-only news and articles, cutting-edge research and knowledge on the most important topics across the procurement landscape. Each Knowledge Group is moderated by an interactive leader and driven by an advisory board and steering committee with extensive experience in the field.
Members are provided access to events, roundtables, meeting transcripts, presentations, white papers, research and a variety of other topic-related information.
Two in particular, look interesting to those in the eSourcing knowledge space.
Spend Management
Procurement leaders are making a step-change in spend analysis and are looking at spend management as a platform to support an analytical, data-driven approach to managing procurement and operations on a sustainable basis. Not simply about good data, successful spend management should highlight compliance leakages, be repeatable, results driven and realize savings.
Strategic Sourcing
This Knowledge Group will provide best practice for effective strategic sourcing that delivers ongoing results for the business. Members will have the opportunity to contact experienced practitioners, read the latest opinions and thinking, and share real-life examples with others.
It seems to have better structure than the same concept from Purchasing.com. However, this is merely a design problem for Purchasing, I believe. My first impression was that ELP was simply better and more useful but this really seems to be because the have a better site design. They are missing RSS feeds (PM provides) which is a big omission, and make much of the site subscription based, which Purchasing does not. Little things, like displaying the date stamps though, just make the site seem really fresh and new. Both are very useful and worth saving for continual usage.
Entry Filed under: General, e-Sourcing Marketplace
August 24th, 2007
David Bush - Iasta
Here’s a different idea for using online auctions. A Swiss company is auctioning off software vulnerabilities to the highest bidder which is raising many an eyebrow. From the Washington Post article:
Vulnerabilities that could be sold on the site range from those present in hardware that supports critical information infrastructure — such as Internet routers — to flaws in common desktop applications, such as Web browsers, instant messenger and e-mail programs. In many cases, the flaws could be exploited by criminals to gain control over home computers or business networks, giving them access to sensitive information.
What’s scandalous, say some security experts, is the idea that the company can be sure that it is not selling instructions for breaking into computers and networks directly to the criminals most likely to use them.
Wobby Sobby Lobby claims that they are screening the purchasers by requiring identification, bank accounts and articles of incorporation. Oooo, thats sounds fool proof! I really dont see this ending well.
Thanks to Tony P, news aggregator extraordinaire.
Entry Filed under: General
August 23rd, 2007
Michael Lamoureux
Design for Sourcing
Successful innovation designs for sourcing. Waiting until the prototype phase, after engineers have made material and component choices, increases the chances that all designed-in-costs will be locked in. Considering that the Defense Advanced Research Projects Agency (DARPA) estimates these costs to be, on average, 80% of product costs, this is significant. Furthermore, failure to involve procurement early could risk increased direct material costs, unacceptable risk in supply, unexpected component obsolescence, missed regulatory compliance, the inability to expand into new geographies, the lack of ability to take advantage of sourcing leverage, increased quality inspection costs, raised manufacturing costs, and missed launch dates.
New Product Development is more challenging now than ever before since the majority of products require expertise across disciplines and organizational boundaries. Most products are so complex that it often requires cross-disciplinary teams across the supply base to design, prototype, and bring a product to market. Furthermore, innovation, which is as much as broadening the product development view as it is about managing the product lifecycle, requires input from almost every business unit.
Managing this innovation is no easy feat, but great results are much more likely if one follows the best practices of best-in-class companies that dedicate leadership, centralize control, standardize processes to capture and leverage results, employ technology to facilitate the process, and measure constantly.
Innovation on Demand
Innovation on Demand is an advanced version of TRIZ, Teoriya Resheniya Izobretatelskikh Zadatch, a topic I first discussed here on e-Sourcing Forum in Purchasing Innovation II: TRIZ. TRIZ is a methodology, tool set, knowledge base, and model-based technology for generating innovative ideas and solutions for problem solving and the advanced version employed in innovation on demand, sometimes known as invention on demand, is important because, as pointed out in this CPO Agenda article, it can be used by CPOs who want to help their firms escape the clutches of patent-protected, monopolistic suppliers.
Furthermore, as CPO Agenda points out, invention on demand can do more for a company than just improve terms from a patent-protected supplier or bypass it altogether. “It can replace expensive components with cheaper ones. It can generate product improvements in combination with target costing. It can be applied to any technical problem, whether for reasons of technical improvements, the value-price ratio, or both.” The process as a whole can considerably boost a company’s performance. As an example, CPO Agenda points out the Korean conglomerate Samsung where TRIZ has become part of Samsung’s culture. In 2000, Samsung’s market capitalization was less then a quarter of Sony’s. Today, it is almost double.
Home Country Sourcing
A lot of companies have hopped on the low-cost country sourcing bandwagon, so many so that many low cost countries are not low-cost anymore. This has inspired some of the more progressive organizations to focus not on low cost country sourcing, but on right cost country sourcing. Right Cost Country Sourcing is a process of not only selecting the right country, but selecting the right country quickly and, more importantly, being able to reverse that decision and select a new country should circumstances change.
However, the most progressive organizations will be those that find ways to source at home and do so competitively on a global basis. After all, when an organization looks at the global risks the World Economic Forum is tracking, it sees retrenchment from globalization, failed and failing states, interstate and civil wars, the US account deficit, and a potential Chinese economic hard landing topping the economic, geopolitical, and societal risk watch lists. This clearly indicates that any organization that can source competitively in its own country definitely has an edge over the competition, considering any one of these risks could bring production to a halt in any organization unable to effectively mitigate such risk.
Visibility First, Consolidation Second
Some organizations hear the oft-quoted fact that, typically, 80% of spend is with 20% of suppliers and go on a consolidation spree, eliminating as many suppliers as possible as fast as possible to get to a number where all supplier relationships can be tracked and managed and associated risks identified and mitigated. This sounds great in theory, until the organization realizes it just cut the only supplier capable of producing the custom GPS chip for the new model of mobile phone it planned on introducing next year, or, even worse, it cut the only supplier capable of producing the guidance chip for the top-of-the-line SUV it is currently manufacturing.
The reality is that most organizations that do not do proper supplier relationship management and proper spend management probably have three to five times (if not more!) suppliers than they need, but the reality also is that until such organizations have visibility into who their suppliers are, what they are supplying, where it is being used, and how they are performing, they are not in any position to do proper supply base consolidation, which, in some cases, might actually dictate the addition of new suppliers where key parts are being singled sourced. Thus, it is important that they acquire visibility into their supplier network before consolidating.
Forget Savings … Avoid Cost in the First Place
Most organizations have a myopic focus on cost savings, but considering there ain’t no saving in a perfect world, this is a level of foolishness that even the SpendFool wouldn’t tolerate! In fact, the SpendFool, in full foolishness, would go Donald Trump on the organization! “You’re fired!”
A leading procurement organization doesn’t look for ways to reduce spend, since this is the result of overspending, which a good procurement organization that does a should-cost analysis on all purchases and makes proper total value awards would not do, but for ways to avoid spend in the first place. Leading procurement organizations will employ substitution strategies, lead innovation-on-demand initiatives, improve inventory management, revolutionize processes, and find ways to get around “fees” and “maintenance charges” that essentially represent low-value to the organization and pure profit to the vendor.
For 16 more great ides on how to take your sourcing to the next level, and more detail on the ideas presented above, see the Next Generation Sourcing wiki-paper over on the e-Sourcing Wiki.
Entry Filed under: General, Supply Management Best Practices, e-Sourcing Marketplace
August 22nd, 2007
David Bush - Iasta
Recently, SupplyManagement.com ran an article called Know Your Type that offered some good advice on how procurement leaders can develop their leadership skills.
According to the article, a leader innovates, develops, focuses on people, inspires trust, learns, creates the culture that’s needed and has an eye on the horizon. The author, who notes that there are problems with developing an approach based on a theory that describes high-powered leaders whose daily experiences bear little resemblance to the daily world of work most leaders have to deal with, tackles the approaches and skills he believes are required for a successful purchasing leader. According to the author, it essentially comes down to personal skills, relationship skills, and a good leadership style.
The first skill-set mentioned by the author are the soft-skills like emotional intelligence. The author says that an effective leader is one who motivates others to work towards a shared vision and harnesses the skills and creativity of the team in a way that maximises productivity.
Leaders with soft-skills are generally more effective than those produced by the traditional, autocratic, directive schools - although these leaders wouldn’t have to do much acting to star on today’s work-related comedies like The Office.
The second skill-set addressed by the author is the ability to build and maintain effective relationships. If you understand your motivations, strengths, and weaknesses and have the ability to reflect on, and adapt, your actions and behavior, you will be better able to engage more positively and constructively with others.
The third skill set tackled by the author is leadership style. According to the author, a good leader is one who can understand and value the differences between team members, not one who easily feels frustrated by those who approach work, and life, in very different ways.
Basically, as far as I can tell, he’s describing an effective leader as one that is strong in soft skills, values their people, and focuses on collaboration instead of confrontation. I’d have to agree.
Entry Filed under: General, Supply Management Best Practices
August 21st, 2007
David Bush - Iasta
A while back, Supply and Demand Executive ran an article titled Elements of Success with Operational Excellence Programs that highlighted the results of a study from Archstone Consulting designed to shed light on what more companies should do to achieve operational excellence.
The article, which was a bit lengthy, noted that fully 55% of the companies in the study reported that their operational improvement drove significant benefits but that companies that can regularly and reliably count on meaningful success from their Operational Excellence programs are comparatively rare at only 11%. It concluded with a four step formula for successful continuous improvement programs that can be summarized as follows:
- Link Operational Excellence Efforts to the Overall Business Strategy
- Link Efforts and Goals through Data and Metrics to Achieve Tangible Results
- Develop a Comprehensive Program that can be Executed by People throughout the Company
- Do what’s right for your industry, company, and unique situation
Upon careful reflection, one sees that e-Sourcing can assist your organization with steps two through four if you take the time to integrate it as part of your overall business strategy as a first step. Not only does e-Sourcing achieve tangible results, but it helps you capture the data and metrics you need to link your efforts to your goals. It’s relatively easy, with the right tools, processes, and assistance, to establish a comprehensive program for your e-Sourcing initiative that can be executed by all stake-holders. And it’s pretty hard to argue that e-Sourcing is not
right for your company when it’s flexible, powerful, and capable of significantly increasing your productivity and efficiency even in situations where there are not a lot of (obvious) cost savings. Furthermore, it can always be adapted to your unique situation by using the appropriate tools and processes.
Entry Filed under: Functionality, General, Supply Management Best Practices
August 20th, 2007
Agatha Degasperi - Iasta Europe
The success of your auction is not only limited to the results you obtain, but also to how smoothly the process runs. Too often, buyers are very communicative up until the auction runs and then forget about the vendors. For continued success and to increase your chances of having vendors take part in future e-sourcing projects, take into account the following suggestions when awarding your business:
- Vendors are informed that the lowest bidder does not automatically win the business. Nevertheless, they should feel like they are being considered (i.e. phone follow-up, possible face-to-face meeting, etc…). If they are not selected (and there may be very good reasons for this), they should receive very concrete feedback as to why they didn’t win the business (preferably not by e-mail).
- Always take into account the award strategy that was given to the bidders in the RFQ document. If for some reason this award strategy will change - it is important to notify the vendors and see how they react as this could very well negatively impact their prices since they were bidding according to the possible volume they were going to be awarded.
- When establishing who will win the business, it is always good to have a back up plan in the initial phases of the award. For example, if you said you would award to 1 vendor, have a 2nd also go through the post auction negotiations in case your selected vendor cannot stand by their pricing, or experiences some change in the business. Same if you said you’d award to 2, a 3rd one in the sidelines is always helpful.
- When your final selections are made, formally notify ALL the vendors of your decision (we’ve had instances where vendors have taken part in auctions and ended up having a very negative perception of the client (and process) because they never received any feedback once the auction was complete - needless to say this does not encourage them to participate a 2nd time).
- Make your award decision as quickly as possible to maintain the momentum. Both the winning and loosing bidders do not have to waste time and energy chasing for responses/award decisions. These vendors have to plan future potential income streams and therefore quick responses (even if they are unsuccessful) can leave a positive impression.
Entry Filed under: General, Reverse Auctions, Supply Management Best Practices, Technology
August 17th, 2007
David Bush - Iasta
There is a potentially interesting research study being created by Aberdeen that is dedicated to usage of on-demand applications in supply chain. Aberdeen states: “In this annual research program Aberdeen will analyze the various strategies that companies are adopting towards supply chain applications development and delivery with a specific focus towards the on-demand model.”
I am very interested to see the results of the SaaS data and whether they see growth and wider acceptance as a application delivery model. Personally, I have no doubt that this will be one of the conclusions and rarely hear companies that have issue with the technology platform.
The final version of the report is expected at the end of this month, I will take a look at the results and post a follow up in Sept.
Entry Filed under: Analysts/Research, General, Technology, e-Sourcing Marketplace
August 16th, 2007
David Bush - Iasta
Per a recent article in Consulting Magazine, CapGem announced new services and changes to its BPO offering to enhance its portfolio.
One of those enhancements is what Capgemini calls Business Insight. This analysis-focused methodology includes customer analysis, spend intelligence, audit forensics, revenue recovery and leakage prevention, as well as ethical fraud testing and contract compliance.
Tony Kelly, global director of BPO product marketing for Capgemini, says there’s huge potential for BPO in the U.S. and Canada, which represents 64 percent of the global $152 billion BPO market. And with its success in Europe, the consultancy already has a model that works.
Its interesting the CG is reversing the move that typically starts in the US and migrates to Europe. In this case, they are trying to replicate success and models that have been working over there to enhance and grow business in the US. From the spend intelligence perspective, there is growing acceptance of concepts like audit forensics and revenue recovery which have been staples of good consultancies for a quite awhile.
Entry Filed under: General
August 15th, 2007
Michael Lamoureux
CAPS Research recently released a very good Critical Issues Report titled E-Tool Optimization that summarized the outcome of a recent CAPS Research Critical Issue Partnership Event on e-Tool Optimization which asked “How do supply management professionals ensure they are getting the most out of the e-Tools available?”.
The report started off by summarizing some of the drivers for e-tool optimization - which include the need for cost reduction, complexity management, internal and external requirements such as Sarbanes-Oxley (SOX), risk mitigation, cross-functional applicability, and user benefits - and the payback - Return on Investment (ROI). One of the surprising outcomes of the event to CAPS, but promising to those of us focussed on innovation, was that, despite the cost-consciousness of a good supply management professionals, the discussion of e-Tool ROI had little to do with dollars and cents, but focussed on the other benefits, such as improved processes and visibility, that contribute to savings in a more indirect, and less measurable, way.
The report also noted that the challenges in getting the most out of the tool do not necessarily lie with the technical capabilities of the tools themselves and that it’s often more a matter of selecting the proper e-tool system or supplier that fits your needs and the functionality you, and your organization, require. To this effect, the report also notes that some of the more prevalent instances where global firms have had success are when they used supplier analysis, spend analysis, contract management & approvals, electronic ordering & invoicing, SOX requirements & reporting, and e-Sourcing and e-Auctions applications.
However, one of the best insights the repot has to offer are the strategies for setting priorities and the lessons learned.
The strategies for setting priorities in the determination of which areas should be targeted first when time, finances, or executive support are limited, are as follows:
- Think Globally
Taking into consideration the potential scope of use could impact a decision to move forward. If a system is implemented globally, the benefits are that it can be monitored globally, from a central perspective to assess overall organizational impact.
- Align with Executive Initiatives
Many firms report success in gaining support for e-Tool enabled initiatives when the proposed benefits align with current executive initiatives.
- Consider Current Status
Understand the status of each process and system and address those where there are gaps and where objectives are not being met.
- Determine Areas of Impact
Assess the current and future areas of impact and focus on the tools likely to have the greatest direct and indirect benefits.
- Consider User Priorities
Who will ultimately use the tool and how does it align with their needs and daily routines?
- Supplier Onboarding
Consider the impact on suppliers with regards to the process and operational changes that will be required on their part and determine if the suppliers are capable and if resources will be required for training or change management.
- Project Ownership
Make sure that someone owns each process, or it may not be taken care of.
The lessons learned summarized in the report, which I will only list since most are self explanatory, are:
- Process First, Then Technology
- Know Your Limitations
- The Right Data is Priceless
- Actively Engage Others
- Consider Global Issues Up-Front
- Gain Compliance and Buy-In
The report also contains some great case studies on Philips Lighting Company, Pepsico, Sonoco Products, and GlaxoSmithKiline that are worth a read on their own. And since CAPS Research reports are free, I suggest you do so.
Entry Filed under: General, Supply Management Best Practices, Technology
August 14th, 2007
David Bush - Iasta
The Supply Chain Management Review recently ran a great article on Supplier-Supplier Relationships: Why They Matter, excerpted on the SCMR site, that pointed out that it’s important to know the types of supplier-supplier relationships you are likely to encounter, since this can help you improve efficiency and drive down costs.
The article notes that there are three basic types of relationships your suppliers can have with each other: competitive, cooperative, and co-opetitive.
In a competitive relationship, which is often the most common, suppliers are primarily concerned with vying for the buying company’s limited spend for each buying category. The suppliers do their best to withhold information from each other and try to keep each other at bay. When suppliers are engaged in a competitive relationship, the buying company can readily maintain leverage over them by controlling the information given to each supplier and by taking advantage of the asymmetry between suppliers. The downside is that, if not careful, the buying company can miss out on potential synergies between suppliers and incur higher administrative costs.
In a cooperative relationship, suppliers work together toward a common goal, but information needs to be shared between the suppliers to the extent that it facilitates the common goal. In a cooperative relationship, the buying company may gain from the knowledge sharing between suppliers. However, in a cooperative relationship, there is always a chance for supplier collusion and the threat they could evolve to the point where they actually become competitive on the same level as the buyer.
In a co-opetitive relationship, suppliers compete and cooperate at the same time. They compete directly for self-preservation, but cooperate in a guarded way when there are mutual benefits. In this type of relationship, a buying company can gain the advantages of competitive and cooperative relationships. However, there will always be a certain level of uncertainty in this mixed relationship context, and one has to be guarded about the possibility of the relationship tipping one way or the other.
Entry Filed under: General, Suppliers
August 13th, 2007
David Bush - Iasta
This one cracked me up. Ariba issued a press release recently which proclaimed a new client acquisition, Blue Cross-Blue Shield NJ. So, whats the significance of this? Nobody really reads press releases, right?
Here is the dirty little secret about the client win PR game. We know no one reads them, but their purpose is two-fold. First, you can show that you have real clients that are willing to admit being associated with you. That is pretty cool and raises the credibility bar pretty high. Second, the release is probably written to “stick it to” the main competitor for that account. In this case, its Procuri, by my guess. Prior to being acquired by Procuri, CMSI would tell any one listening that they had deep penetration in the BCBS network, which was in fact, true. Its not immediately clear from the release if Ariba Sourcing is going to be included, but it surely will make a company uncomfortable to know that your direct competitor is sitting across the room sowing doubt about you. We specifically released a client win in the past because we knew the company evaluated 14 different applications before choosing Iasta. That was our way of letting everyone know they lost. That particular company just signed another long term extension, so life is good and we had our fun.
Childish..probably, devious..probably, reality..definitely.
Entry Filed under: General, e-Sourcing Marketplace
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