Fortunately, Ebay was able to catch a minor problem with a recent bid that appeared online. Appears that some one put Belgium up for sale in another attempt for an exit strategy within a failing model. (Hat tip, Tony P).
However, this is a good lesson in best practices as the sponsor really was not in a position to complete the transaction, although it does seem that they set a good starting price which generated sufficient interest. The ending bid would seem untenable, however, seeing as though the “winner” would take on $300b Euro in national debt.
Also of interest, is the growing mystery of ‘Who is Tony Poshek”? Well, he made me drink too many Black and Tans last time I saw him, so my memory is very fuzzy on this, sorry Charles. However, if you see a guy with a guitar case come into a bar, it might be him.
3 commentsSeptember 27th, 2007Sean Delaney - Iasta UK
Well, it’s amazing how quickly the eWorld conference comes around. This time there has been a seismic shift in the market. Not only has the number of vendors shrunk (4 less than in February) there has now become a more definitive split between technology and service providers.
The purchase of Procuri by Ariba has given buyers far less choice in the market and that has been reflected in the number and quality of vendors offering eSourcing solutions. This may be disappointing to some users but at least it has given the market far more clarity.
Colonel Tim Collins lunchtime keynote was over subscribed (famous for his speech given to troops on the eve of the 2nd Iraq conflict). Life & Death Procurement: Leadership on the Corporate Battlefield was noted as a highlight of the day by many of the delegates.
I suppose going to war needs to be simple but even more important is that you need to be right first time. The Colonel listed 6 key areas which in his view were essential for survival in the corporate procurement. I think these have direct relevance with many successful implementations I have seen of eSourcing and worthy of note:
Get your priorities right - know why you exist
Get organisation right
Get the right people into the organisation
Get the right spirit in the organisation
Get your instructions on the day to day right
Let them the get on with it.
Now we have seen these expressed in many different ways in the past but the fact that the Colonel articulated them in the framework of war gave the message added resonance.
However, I would add there remains one fundamental difference that within a war zone the incentives to get it right are obvious. Whilst in a corporate environment there are both personal and corporate objectives at play. In order to be successful these need to be aligned and require further incentives to be put in place i.e. remuneration aligned to corporate procurement goals.
On a final note, it was great to see Aberdeen here for the first time and certainly the feedback was extremely positive. Their opening keynote was a great way to set the scene for the rest of the day.
The benefits of purchasing consortia primarily fall into three buckets: economies of scale, economies of process, and economies of information. Each of these buckets provides a number of benefits to the member organizations.
Economies of Scale
The first type of benefit offered by a purchasing consortiums is economy of scale. The sheer volume of purchasing demand amalgamated by a decent size consortium generally provides each member with economies of scale that they could not hope to obtain on their own. The consortium is generally able to negotiate (much) lower prices for the good or service being awarded than any single member company in the collective. These savings are usually significant, ranging from 10% to 35% according to the Buying Support Agency. Furthermore, by joining together in a consortia, organizations can (effectively) streamline procurement processes. This not only reduces unit cost, but also reduces the overall transaction costs since only one contract needs to be negotiated and implemented.
Economies of Process
The sharing of purchasing information on suppliers, new technologies, market developments, internal users, and historical spending behavior not only avoids redundancy and reduces transaction costs but creates an economy of process above and beyond what each organization could generally achieve on its own. Since the consortium handles a number of buys on behalf of the organization, the organization has a (significantly) reduced workload, especially on the tactical side, and the buyers are freed up to focus on more strategic categories. Furthermore, individual members units are able to improve their results by sharing best practices in certain business processes, leveraging expertise in functional areas, and pooling knowledge about how to succeed in specific regions with the consortium and with each other.
Economies of Information
The consortium of the future offers the benefit of expertise more so than it offers the benefit of scale. Eventually, especially with constantly rising raw material prices, the best practices employed by a competent consortium will squeeze all of the fat out of the supplier’s margins and the best price will be obtained. Once this occurs, the consortium will use its expertise to assist its members in advancing purchasing technology, reducing wasteful consumption, and improving the application of the goods and services they purchase. Since a consortium has access to all of the knowledge of its members, it can tap this knowledge to identify the best potential suppliers with the best potential products and services to meet member needs. Furthermore, this gives it a much better chance of identifying and qualifying low risk suppliers.
For more information on Purchasing Consortia, check out the Purchasing Consortia: The Emerging Collective wiki-paper over on the e-Sourcing Wiki, which will review different types of classifications, various benefits, potential drawbacks to watch out for and avoid, common fears to quell, selection criteria, consortium success factors, and best practices to get the most out of your membership.
Last month, SupplyChainBrain, ran an article written by Ashok Santhanam of Bristlecone. I did not see any one highlight this article, so I thought I would bring mention to it.
Santhanam does a nice job of highlighting the typical problems that manifest in corporations, many times with very expensive back end ERP systems not solving the problems in the slightest. Issues such as data inaccuracy due to inconsistent coding system within companies or across divisions, bad item level coding and no linking to industry standardized codes (SIC or UNSPSC), inter-company linkages, and special classifications within the supply base.
He also breaks down three phases of implementing a spend analysis solution, as almost 900 other companies have done (although this number pales in comparison to the 8,000 eProc deployments)
Cleansing and building: Merge, map and augment are the easy ways to describe the details of the launching of a SA program.
The data now exists in a normalized and constructive format, its time to start the analyzation process to look for outliers and opportunities. Iasta does this by building spend cubes and custom data dimensions.
Take action. All the data will begin telling stories, many times very scary stories. Its time to put together a plan and go after aggregated sourcing opportunities or consolidate the supply base, as examples. We also like to propose opportunities where invoicing errors have occurred on major categories, leading to millions of dollars in overbilling and subsequent opportunity for credit reconciliation.
The article concludes with sage advice based on his years of experience:
It’s important to keep in mind that spend analysis and optimization efforts not be viewed as a one-off project. Some organizations may view a large spike in savings from doing a spend analysis one time as reason enough to stop. But for most companies, a long-term program will help a company continue its success by preventing maverick buying, encouraging contract compliance and reducing the practice of buying from multiple suppliers at different prices.
Under a long-term program that combines projects with a managed service program through a trusted vendor, clients can build upon a history of data cleansing and analysis work without having to initiate a new process from scratch each time procurement problems escalate. This approach is the surest way to future-proof your initial cost-saving results.
(caused by NAFTA), was just supplemented by a new acquisition close to the border in Austin, TX. (I know, the money isn’t going to Mexico, but it was the best I could come up with). Last week, while all the noise about Procuri was at full throttle, Nextance went out and made one of my direct predictions golden!
I am not sure what to make of the acquisition, since it is not even mentioned on the company websites. Is it really that ho-hum, except for a little talk on Spend Matters? I don’t even know very much about Versata (formerly Trilogy), or why they took interest in Nextance. Based on their own description:
Versata partners with corporate IT departments to enhance and simplify critical operations, with a persistent focus on decreasing spending enterprise wide. Versata’s patented solutions cut IT expenditure by reducing hardware and associated maintenance, leveraging open source technology, and accelerating value delivery to business customers. As one of the only companies in the industry with a focus on total cost takeout, and with technology to back our claim, Versata has established a reputation as a true ally to the Information Technology department.
Within the press release, I notice some interesting details that normally are hidden from public announcements.
A “quote” from Nextance CEO, Kyle Bowker,”By joining the Versata family, we secure Nextance’s long term viability and ensure our continued commitment to leading products in an increasingly competitive space.”
That sounds really warm and fuzzy, but I read that as a distressed final move by Nextance. I could be wrong, but they burned through a lot of cash and this might have been all that was left to salvage shareholder value. By “securing long term viability” with Versata, does that infer that they would not have been able to otherwise?
Versata will consolidate Nextance’s operations at the Austin headquarters while ensuring seamless support for customers.
That sounds like a full blown take over and only a handful of critical employees will be asked to move to Austin. It also sounds like Versata is saying, “Thanks, we’ll take it from here.”
In all likelihood, this was a dirt cheap acquisition of very solid and highly leveraged technology, by a company that has shown the ability to deliver on multiple platforms. I can’t say I am surprised by it.
As usual, Spend Matters is the nerve center of news within all things procurement. Jason has been doing a great job of keep his finger on the pulse of this huge change within the software sourcing ecosystem. Unbelievably, some of the leading industry news outlets like CPO Agenda, SupplyChainBrain and ELP have not even recognized the story and sit blankly staring ahead.
Purchasing Magazine and SDCExec do have coverage of the news, which is great to see. I have to give Supply and Demand Chain Exec the nod here, they did a nice job of reporting multiple angles and adding input beyond the press release. They even referenced the blogs for extensive coverage, although there is no mention that this whole thing was actually broken by the blogging community prior to the announcement.
Separately, I am wondering what will happen to our blogging brethren, Supply Excellence? Will Spend Matters and Supply Excellence now merge? Will Jason acquire Tim? I fear we will soon be losing part of the family as collateral damage from the acquisition…
I have been trying to verify some industry rocking rumors this week…
So far, I have not satisfied my three source rule but this particular rumor has circulated a few times earlier this year and refuses to dissipate. It seems the acquiring company sweetened the pot enough to make this deal close and sweep up another eSourcing player.
If this proposed combo is true, it will shake the very foundation of supply management and the number of players left that can compete for the true enterprise deployments. It will also rival the biggest deal in the industry to date - Ariba/FreeMarkets.
Frankly, I am very hopeful that it comes to fruition and it will mark another of my predictions from December. I am also actively seeking West Coast sales help and this will help my search immensely.
Some guy named Mike Lamoureux wrote guest commentary in the latest newsletter from Eyeforprocurement, on the in’s and out’s of sourcing optimization. Of course, its worth a read because optimization is technology that has a bark much worse than its bite. Meaning…its not as bad or complicated, as you think it is. Specifically, the end of the article mentions:
Whereas reverse auctions are often only good for squeezing the fat out of supplier margins, optimization solutions uncover true efficiencies. So, when your reverse auction fails to deliver any additional savings the third time you run it on the same commodity, decision optimization can still be used to find potential savings through improved inventory management, distribution, or dual-sourcing strategies. Strategic Sourcing Decision Optimization will transform your sourcing process for the better.
This is a classic evolution into the next phases of eSourcing for companies that have already experienced great results with the first few waves. Additionally, we see many companies coming to the table with a more advanced outlook on deploying and utilizing eSourcing concepts. More information on advanced sourcing and negotiations are available, at no charge from our sponsorship of an Aberdeen report on the subject earlier in the year.
Purchasing.com recently ran their fifth installment in their strategic sourcing series - How to Negotiate with Suppliers - which presented a number of tips for successful supplier negotiations. According to the article the following five points are key:
Know the Market
The right data allows a sourcing manager to develop a strategy that has a high probability of reducing cost and minimizing risk.
Be Collaborative
Remember that the ultimate goal of any negotiation is to get the supplier’s representative to go back and sell the deal. Consider a neutral location.
Go for a win/win
Negotiations are most likely to succeed if everyone feels they are getting a good deal.
Keep things fair
Don’t try to strong-arm or intimidate suppliers at the negotiation table. They’ll just get defensive, and we already know a collaborative spirit is important.
Aggregate spend
Knowing your complete spend up front will give you some leverage in negotiations.
and the following tips should also be kept in mind:
Aim for long term relationships
Be ethical and honest
Be patient; Talk Less, Listen More; Ask Questions
Set a Deadline
Don’t be Afraid to Say No
This is good advice … and we’ve found that our customers who employ these tactics are generally quite successful.
Contract Management, which can be defined as the execution and monitoring of a contract for the purpose of maximizing financial and operational performance and minimizing risks, involves tracking purchases against contracts to insure preferred suppliers are used, rates adhered to, and discounts and rebates collected. Contract Management is important, because, as mundane as it sounds, it is another part of the sourcing process that can bring a number of benefits to the organization.
Standardized Processes and Procedures
This helps to decrease maverick buying and decrease supply risk while increasing spend leverage. The net effect is that buys as a whole become less costly and more valuable and a much greater percentage of negotiated savings are captured by the business.
Spend Visibility
Probably the most valuable benefit of a contract management system - which lets you know if you are buying from the suppliers you’re supposed to be buying from at the right times, quantities and prices - it can also help an organization standardize on consistent contract terms and conditions. Furthermore, it also allows for easy identification of contracts with suppliers in high risk zones due to natural disasters, political unrest, or economic uncertainty, which is critical to the development of appropriate organizational risk management strategies.
Solid Foundation for Spend and Performance Analysis
With all of the contract conditions and negotiated prices and fees in a central location, it’s a lot easier to compare actual purchases against contracted buys. This allows policy or regulation violations to be caught and dealt with immediately and insures that all spend is known and available to be appropriately leveraged in sourcing projects.
Rebate Management
Contract Management systems make it easy to track rebates and insure that all of the savings negotiated in a sourcing cycle are captured.
Reduced Maverick Spending
With a contract management system, a buyer can immediately determine if a contract exists, who the contracted suppliers are, and what the contracted prices are. No longer is “I didn’t know we had a contract” or “I didn’t know I wasn’t supposed to do that” a valid excuse!
Evergreen Contract Elimination
Without a contract management system to automatically alert a buyer of contracts coming up for automatic renewal, many auto-renewing contracts are likely to go unnoticed and automatically renew, locking the buyer in for another buying cycle. With a system in place, the buyer can be alerted weeks or months in advance, depending on how long a sourcing cycle normally takes for that commodity or service, and take appropriate action.
For more information on the benefits of Contract Management, see the Contract Management 101: A Total Value Management Introduction wiki-paper over on the e-Sourcing Wiki. In addition to more detailed information on the benefits, as well as more benefits, it also defines contract management from a sourcing and enterprise perspective, outlines the basic requirements of a contract management system, and overviews some best practices to help you get the most from your contract management system.
On the heels of yesterday’s post, I wanted to bring attention to another article regarding the topic of offshoring. This one comes from a publication named Cargo News Asia and comments on some of the proactive measures that buyers are beginning to build with regard to a recent swell of problems coming from Chinese sourced products.
In the face of potential negative publicity among discerning consumers, suppliers in China are facing increasing pressure to conform to demands of brand name retailers for Corporate Social Responsibility (CSR).
A recent China Supply Chain Council conference in Shanghai on IPOs (Internal Purchasing Organisations) raised a number of issues facing buyers and suppliers in China, one of which was the increasing demand for accountability from buyers.
The fact that China might have as many unregistered, migrant workers as 67% of the entire population of the US, is incredible and presents even more daunting issues and shows the amount of due diligence and organization needed to effectively (and safely) source from low cost countries.
The Wall Street Journal recently brought attention to supply chain management and even quoted an occasional visitor/commenter of E-Sourcing Forum, Adam Fein of Pembroke Consulting. Although not quite as prestigious as exposure from ESF, Adam gets a great plug on another highly respected outlet.
Make supply-chain management a top priority. Mattel’s recent recall of millions of lead-tainted toys from China — which followed fears about hazardous materials in toothpaste and pet food, and a recall of thousands of tires made in that country — has executives at every global company quaking.
What management lessons do you try to abide by? Were these lessons handed down to you, or did you learn them the hard way? Share your best management advice. Don’t wait for a crisis. Scrutinize manufacturing suppliers and improve quality-control systems at your company. You can start by making sure you recruit and reward talented supply-chain managers. Otherwise, you risk moves that damage your company’s brand and can trigger lawsuits.
The Mattel woes that were discussed early on, here on ESF, have made their way into WSJ commentaries, and not surprisingly. This story has continued to get worse (almost weekly) with more recalls, bad press and executive suicide. Fortunately, there have been no reports of consumer health problems. It does not feel like this story, or other China import nightmares, are over and they will likely be catalysts for some major changes with respect to LCCS.
Recently, Supply and Demand Chain Exec ran an article from the executive perspective, which had some interesting insights from Linda Tuck Chapman and Cyndi Joiner of Fifth Third Bank and Sourcing Interests Group, respectively.
Stated early is a profile of the modern CSO, “In more progressive organizations, in addition to reducing costs the CSO is charting a new course to dramatically improve operational performance, establish alliances to open new sales channels and markets, source partners to jointly launch new products, and upgrade the operational performance of business operations. The new value proposition includes establishing clear expectations complemented by performance metrics that are designed to improve company performance. Internally, the CSO will streamline the company’s internal supply chain processes and proactively manage the demand for goods and services.”
The authors also identify four major areas of influence by the CSO, which include performance management, governance, offshoring and outsourcing. All of which are consistently mentioned as trademarks of highly effective sourcing organizations.
In my experience, which is unscientific in nature, I still believe this is a fairly uncommon style of management and organization. More commonly companies are still taking much less sophisticated approaches to supply management and do not give procurement enough resources or value within the overall corporations, leaving purchasing teams without the necessary tools and staff to execute to the fullest ability. Although the CSO position would not be considered a statistical outlier by me, it is certainly under utilized. Fortunately, I believe this position acknowledgement is growing and has changed significantly over the last 8 years that I have witnessed first hand.
Spend analysis is the process of aggregating, classifying, and leveraging spend data for the purpose of gaining visibility into cost reduction, performance improvement, and contract compliance opportunities. It is part of an overall spend management and visibility process that includes the analysis, award, and monitoring of corporate spend. Additionally, it is the first and last step of the strategic sourcing process that drives total value. But it’s more than determining (i) who is buying (ii) what (iii) from whom (iv) when (v) and where (vi) and at what price. It’s about finding opportunities for savings across your organization, as obvious and non-obvious as they may be.
For example, here are five applications of spend analysis:
Commodity Analysis
Build a separate, commodity specific dataset to determine how much of a commodity an organization is buying, if it’s being charged consistently, if the charges correspond to any contracts in place, and if there are any opportunities for spend consolidation.
Rebate and Refund Collection
Did you know that you’re probably paying too much for your office supplies and high-tech equipment? Some of the more innovative consultancies have found that many office supply and high-tech companies overcharge across the board, even when contracts are in place. For example, many large organizations sign “best price” agreements with a high-tech supplier for all computer purchases over the next year, but in reality, if they don’t watch prices, most often end up paying the same amount throughout the length of the contract term for the exact same configuration even though prices tend to decline a few percentage points every month for a given hardware configuration. Also, if office supply agreements are for fixed quantities, such as a 10-pack laser printer toner cartridges, it’s often the case that an organization will end up paying (significantly) more per unit if they order less or more. And then there’s the rebate - which you only get if you order a certain volume and, in many cases, prove it and ask for it. I’m not saying these overcharges are the product of willful malicious intent on the supplier, but that such inconsistencies can slip through both parties if proper systems are not in place to properly process invoices and analyze spend.
Maverick Spend Identification
$10M in negotiated savings is simply that - $10M in negotiated savings. For the savings to hit the bottom line, the contract, and all its terms, have to be adhered to. If your buyers still buy off contract, you could lose out on all of the savings, and more. Spend Analysis can not only detect how much spend is off contract, but if proper data is kept, it can identify which supplier is getting the bulk of the maverick spend, what department is causing it, and, in some cases even the individual behind the problem.
Fraud Reduction
Most employees are decent, hard working people. In fact, most are more honest than the employers they work for. (And if you don’t believe me, read the Freakonomics book or blog which chronicled Paul F. and his honor system bagel operation where he found, with 20 years of data to back it up, that executives are often less likely to pay on an honor system.) But if your company is large enough, chances are you have one or two bad apples trying to defraud you. And even though they might not be trying to ring up $241,000 at a strip club or charging you 998,787 to ship two 19-cent washers, chances are, if they are of the right persuasion, they are bilking you out of thousands of dollars a year. Without a good spend analysis tool, how will you ever find out that your salesperson is submitting the same 378.65 receipt for customer entertainment 6 times, or that your new executive is not only paying for customer entertainment on his new corporate credit card but his own golfing excursions as well, or that the 378.65 charge from a generic entertainment company is not for a meal for 4 client representatives but for your new executive’s lap dances at his favorite strip club? Don’t laugh and don’t say that never happens - it does - and sometimes all too often at big companies that have transactions that is an order of magnitude more than their accounts payable department can process and review manually.
Opportunity Assessment
Not only can it tell you who is buying what from whom, when, where, and at what price, it can tell you whether or not there are large variances in the spend for the same commodity, whether spending conforms to appropriate market indices (assuming you have access to such data), and whether there are opportunities for supplier consolidation or rationalization. The limits of a good spend analysis tool are only those imposed by your own imagination.
There’s Gold in Them There Hills … Of Data wiki-paper over on the e-Sourcing Wiki. In addition to a thorough overview on the spend analysis process, technology requirements, and technology approaches, it also describes, in detail, what spend analysis really is, why it is necessary, what the various approaches to it are, the challenges associated with a project, and some of the more common applications to which a sourcing professional can apply it.
Additionally, you may elect to download a free copy of the latest Aberdeen research on spend analysis, which is available via this link.
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