Archive for October, 2007
October 31st, 2007
David Bush - Iasta
Last week, in Part I, I brought your attention to a recent publication from the Boston Consulting Group, Sourcing From China - Lessons from the Learners that contained an exhibit that described the four stages of successful Low Cost Country Sourcing:
- Test the Waters
- Early Engagement
- Full Integration
- Make the Low Cost Country a Center
In response to the post, a reader asked about the effectiveness of e-Sourcing applications in each of the four stages. In this post I am going to provide some insights on how I think e-Sourcing can assist with each stage.
Stage 1: Testing the Waters
In this stage, a company sets up a Low Cost Country sourcing office, rolls out pilot projects, develops processes, generates early results, and gains buy in.
In this stage, standard spend analysis, e-RFx, and e-Auction play a very strong roll. Basic spend analysis is used to identify low-hanging-fruit high-spend commodity categories that can be turned into quick wins, multi-stage e-RFx is used to quickly identify a set of potential suppliers, which are then qualified in successive stages, and e-Auction is used among the qualified suppliers to drive the price down to true market price and get a quick win that can be used to generate buy-in for future effort.
Stage 2: Early Engagement
Expansion occurs through multiple waves as the supply market dynamics are understood, processes fine-tuned, capabilities expanded, and IP protection addressed.
In this stage, more of the high-spend categories that were not addressed in stage 1, either because they were not likely to generate quick wins through standard e-Auctions or because the items were somewhat customized in nature are addressed. e-RFx is still used heavily, but more advanced cost models and basic award decision optimization is brought into play as multiple factors are considered in the award allocation. The advanced collaboration and document control capabilities of the platform are used to insure that only authorized users have access to sensitive IP, which is revoked if a potential supplier does not win a contract; and a contract repository is built to track contract terms and conditions.
Stage 3: Full Integration
In this stage, Low Cost Country sourcing is integrated into the company’s global procurement process, suppliers are included in the design process, and the Low Cost Country is integrated into the extended global supply chain.
In this stage, the full capabilities of a true spend analysis tool are used to identify all possible savings opportunities, advanced decision optimization is employed to make sure that the buy makes sense in terms of the network (as transportation costs and late shipments can cost more than the projected savings associated with an item on a unit cost basis), the contract T’s and C’s are tracked in the e-Procurement system to make sure all invoices are n-way matched and negotiated savings immediately realized (and alerts sent out if something is wrong), and supplier management technologies, particularly in the area of performance and enablement are introduced.
Making the Low Cost Country a Center
The Low Cost Country becomes a critical supply base, some procurement functions are migrated to the Low Cost Country office, and suppliers become an integral part of the company’s product-development system.
This goes beyond a full end-to-end e-Sourcing suite and into proper structure and management of the procurement function. Without a good strategy, organization, leader, and processes, an e-Sourcing suite won’t save you. However, if everyone is done right, it’s the key to unlocking the savings you identify.
As a final note, this advice, as well as the advice from the Boston Consulting Group, applies to any Low Cost Country, not just China!
Entry Filed under: Analysts/Research, General, Global Supply Issues/Risk, Supply Management Best Practices, Technology
October 30th, 2007
Michael Lamoureux
A recent study by McKinsey & Company and the Supply Management Institute found that high performing firms have high performing purchasing departments, that what matters most is the people in the purchasing department, and that purchasing departments staffed with talented, motivated, and interactional personnel achieve, on average, savings that is two-and-a-half times higher than their peers who haven’t yet figured out that when it comes to supply chain, People Matter Most.
Therefore, should you be so lucky as to acquire exceptional talent, it is key in today’s economy that you hold on to it. The following are ten tips that might help you do just that.
- Organizational Culture
An organization needs the right environment to attract and retain the highest calibre procurement talent. Although this is hard to define, a good start is the right mix of openness, diversity, ethics, sustainability, fun, and support for work-life balance.
- Give Them Space
Empower employees to make their own decisions and give them the room to do so. Encourage them to try new ideas and don’t break out the whip if they fail, as one can often learn more from failure than from success. Also provide employees with the freedom that allows them to get the job done in the ways that work best for them.
- Mine for Opportunities
Involve the organization’s best people in strategic planning when the search is on for the next great opportunity and allow them to head new projects or spend categories on their own.
- Challenge Them
Ensure that BIG and NEW purchasing challenges are presented to them on a regular basis. Great talent is drawn to the opportunity to work on big things and to apply new thinking.
- Training
Good training starts on day one, from the minute a new recruit walks in the door. Before the recruit was hired, the manager should have laid out the skills relevant to the role, identified potential gaps, and developed an appropriate (on-the-job) training program to get the new employee up to speed as soon as possible.
- Mentoring
Mentoring facilitates knowledge transfer, helps the organization take advantage of lessons learned, and makes both the mentor and the mentored feel valuable.
- Career Path
Good procurement personnel are ambitious. They want to know that they can advance over time. Make sure there is a career path for every employee that starts at junior buyer and goes all the way to CPO.
- The Right Equipment
Every professional needs tools. This goes doubly so for procurement professionals who often have the hardest job of all managing the organization’s global supply chain. Make sure they have the right sourcing, procurement, logistics, inventory management, and contract management tools (to name a few) that they need to do their job effectively and productively and don’t be cheap when it comes to technology.
- Rewards
A good salary is often the top indicator of employee retention, and often the top reason an organization loses its top talent. Know what your top people are worth on the open market and do your best to compensate them justly.
- Proactive Stay Interviews
Even if the organization has the right culture, makes efforts to empower its employees, mines for opportunities, challenges the team regularly, offers continuous training opportunities, institutes mentorship programs, establishes a career path for each employee, gives them the right equipment, and rewards its employees handsomely, don’t assume this is enough. Everyone is different and every team is different. Instead of guessing, find out what your staff really want by asking them.
For more information on Talent Management, check out the Talent Management: Build and Retain World Class Sourcing Talent wiki-paper over on the e-Sourcing Wiki which covers the five R’s of talent management - resolving, recognizing, recruiting, retaining and retiring, skills development, and succession planning.
Entry Filed under: General, Global Supply Issues/Risk, Supply Management Best Practices, e-Sourcing Marketplace
October 29th, 2007
David Bush - Iasta
Flipping through my ever increasing stack of Purchasing magazines, I noticed an article titled Purchasing Compensation: How to Negotiate a Higher Salary that I missed this summer which is actually quite interesting. Especially since it started off with the most important advice for anyone asking for a raise: know your value. Do your homework before you sit down for a negotiation.
As some of my fellow bloggers are quick to point out, demand for purchasing professionals is on the rise. Results of Purchasing’s most recent annual survey indicated that compensation rose by 6% last year, compared to the average increase of 3.6% for other professionals. According to Tonia Deal Consultants in Ohio, a candidate at market value can receive a raise of 12% to 15% simply by accepting a new position in supply management.
The article notes that a good time to approach your manager about your salary is if you’ve been with a company for a period of time and have not had a raise and your research shows that you’re not compensated at a level on par with your peers, or if your responsibilities have significantly increased. Put together a business case for the meeting. As a purchasing professional, this is a skill that should be well honed.
If you’ve recently completed a certification, such as the C.P.M. (Certified Purchasing Manager) or the S.P.S.M. (Senior Professional in Supply Management), or an advanced University Degree, this can also be used to your advantage in a negotiation. If your company does not see the increase in your value as a result, it’s certain that someone else will.
If you’ve done your homework, and you feel you are due for a raise, and management does not, then it might be time for a move. The article offers some questions that you can ask to help you tell when the time might be right to move on.
- A purchaser needs to look at his or her professional growth path. Define yourself in terms of what you want to accomplish in supply management.
- Who are you working with now? Are they going to help get you to your goals?
- Compare the performance of the organization to the first two. If you see that the company is not heading in the same direction, then it may be time to put out feelers.
The article concludes with five tips from Lovering Consulting for purchasing pros negotiating a salary increase.
- Have self confidence. When you negotiate your own salary, you need to feel good about yourself.
- Have reasons for the raise. Keep track of contributions and value-add to the organization. It’s your best leverage.
- Know your boss. What makes him or her tick? The more you know how your boss thinks, the more your argument will sing. That means you need to listen, and spend time nurturing a relationship with your manager.
- Separate emotion from argument. A salary negotiation is not about personal relationships. It’s about your major contributions. You want to get paid fair and reasonable money for what you do. Keep that in mind: Fair and reasonable.
- BATNA (Best Alternative to a Negotiated Agreement from the book Getting to Yes Faster by Roger Fisher and William Ury) What are you going to do if negotiations fail? You should be thinking this before you sit down with your boss - what is my BATNA? Another offer, another company. Have a back-up plan that hopefully you never have to use. Having BATNA in your back pocket like an insurance policy will make you more self confident, says Lovering.
Entry Filed under: Analysts/Research, General
October 25th, 2007
David Bush - Iasta
Sometimes I need to take a minute to realize that the whole world does not already just “get it”, when it comes to the SaaS model. Although we have built our tools in the on-demand framework from the beginning, there are still many that are only now coming to the realization that the application delivery model is the best for supply management professionals. This was recently pointed out in an article by Maria Varmazis of Purchasing Magazine, who wrote a good overview of the a few companies that had successfully deployed on-demand software and had been experiencing the benefits for quite a while.
I guess when I use the term “deploy” it can be deceiving, since there is no “deployment” in on-demand and the usage of the word is a legacy term from the old days of enterprise software. In those situations, you needed an army of consultants and developers to prepare for months or years to get the system online and ready to use. Unfortunately for some companies, eSourcing technology is not always ready to go in a SaaS model, which means the problems still exist if you choose the wrong vendor.
The article gives some good basics about both the benefits and challenges of on-demand, but is most assuredly positive, in general, about the entire experience. I will be curious to see the day that on-demand is no longer the story and more the expectation.
Entry Filed under: General, Supply Management Best Practices, Technology, e-Sourcing Marketplace
October 24th, 2007
Michael Lamoureux
No, this isn’t the 12 Steps to Serenity in a different guise, and I certainly will not be asking you to accept God as your personal savior, which I consider to be a downfall of many such programs as you cannot accept that which is against your fundamental religious beliefs, which are different for every individual, but a methodical process that, if adhered to, should give your purchasing organization the respect and status it deserves in its effort to introduce a technology-enabled program to increase compliance, decrease risk, and deliver savings.
- Define the Value Proposition
The first step is to clearly define the value proposition and qualify and quantify the expected benefits and the amount of work to get there, by researching the current organizational processes and state. The benefits of an earnest e-Sourcing or e-Procurement effort generally include lower costs, supply security, improved risk control, buying leverage, quality improvements, process efficiency, and continuous improvement. However, it might be hard to get buy-in without some quantification of the expected benefits.
- Credential Check
In order to sell a business plan to upper management, one will need lots of credentials, not only on paper, but in real-world experience. If no one on the team has successfully implemented a similar project before, it will be important to line up a top consultant, or two, for the project.
- Perfect the Elevator Pitch
It’s important to nail down a kick-ass elevator pitch early and that everyone on the core team be prepared to pitch it at any time - in the elevator, in the lunch room, and standing in line at the theatre if that’s where a key decision maker happens to ask about how work is going.
- Identify the Stakeholders
Identify all of the affected parties before building the business case - not after. The stakeholders are the indidivuals who ultimately determine the success of the project - not the implementation team, the vendor, or even management - and if their concerns are not addressed, there could be severe push-back.
- Identify the Big NO!(s)
After the individuals whose blessing is needed for project approval are identified and the needs of the key stakeholders whose lack of cooperation could bring the project to a grinding halt addressed, it is critical to determine what could cause them to ultimately say “No” and tackle these issues early on.
- Build the Business Case
This step results in a formal project proposal document that is delivered to each decision maker before the big presentation. It should contain an executive summary, background information, assessment of strategic fit, a market analysis, a proposal, commercial considerations, a financial analysis, risk and sensitivities, options considered but rejected (and why), and a final recommendation.
- Call for Backup
Hopefully the team identified who its supporters and friends are when it was identifying the key stakeholders and (casually) gathering their input regarding the project. Now it’s time to update them on the formal plan and gather their support before the big presentation.
- Sell the Solution
Now it’s time for the big presentation, which could be the team’s one and only chance to sell the project. This will require being well prepared for any question that might arise.
- Start the Project
All aspects of the project must be managed without anyone micromanaging. It’s important to temper urges to move too quickly. A steady and methodical approach will yield less hiccups to be cured and lead to the best results in the long run.
- Socialize
It’s important to remember that it’s not over until it’s over and that the team is going to need the support of its sponsors every step of the way! Make sure to communicate project status regularly with all stakeholders.
- Sell, Sell, Sell
Just because management approved the project and the budget does not mean that they can’t change their mind three months in and kill it. Thus, it is crucial that the team constantly sells the project to make sure it reaches the breakeven point, since it is only then that the organization will start to see the significant returns promised.
- Cure the Hiccups
Nothing ever goes perfectly, and it’s important to be ready when little things go wrong. Make sure there is a slush fund built up to account for these hiccups and extra (consulting) work that may be required.
For more information on how to take your purchasing function to the next level, check out Quest for Purchasing Fire wiki-paper on the e-Sourcing Wiki, which will also help you to prepare the business case, conduct a reality check, bait buy-in, and manage the transition. It also contains a bibliography of select references that you can go to for even more information.
Entry Filed under: General, Supply Management Best Practices
October 23rd, 2007
David Bush - Iasta
Boston Consulting Group, a highly respected consultancy, has released a new publication named Sourcing From China - Lessons from the Learners. It is another one of these reports that I have come across recently which is a digestible size and easily read. I recommend downloading and saving, if your organization does any offshoring or plans to. Understanding the risks versus the rewards is the first thing that should be done before proceeding. It can be wildly successful, or implode spectacularly. Or, more likely, it will be somewhere in between, and require more than you ever anticipated.
Of interest to me, was an exhibit which describes the four stages of successful China Sourcing. These follow as Stage 1: Test the waters; Stage 2: Early Engagement; Stage 3: Full Integration; Stage 4: Make China a Center. A larger version of the image is available below.
BCG also identified ten recommended best practices (nice, convenient round number) which they go into great detail on each. At the high level three listed that I found helpful and interesting were:
- Define a clear sourcing strategy with specific targets and plans
- Align the China Sourcing Organization with Global Procurement
- Gain 100% transparency into Sourcing volumes and savings
Its a good report and worth saving for reference.
Entry Filed under: Analysts/Research, Global Supply Issues/Risk, Suppliers
October 22nd, 2007
David Bush - Iasta
If you are a small business (as defined by Aberdeen as sub $1b in revenue), then you are probably getting tired of being classified as a Laggard in every study that comes out. I came across a nice short brief by Aberdeen which packages up the details of the smaller enterprises very well. It also offers compelling evidence of why you need eSourcing. It is a free report and I recommend saving it, if you are thinking about eSourcing and trying to build the business case.
Interesting statistics were mined by Aberdeen in reference to this market:
| Performance Level |
Large |
Mid-Market |
Small |
| No eSourcing application |
20% |
57% |
41% |
| No Sourcing process |
13% |
49% |
39% |
| Spend Strategically Sourced |
51.3% |
39.9% |
26.9% |
| Spend e-Sourced |
23% |
16.9% |
18% |
| Avg. Identified savings |
11.2% |
10.6% |
13.1% |
| Avg. implemented savings |
9.8% |
9.4% |
8% |
On average, half of all companies of this size have no eSourcing applications and 40% have no sourcing process compared to about 15% within large enterprises. Aberdeen’s number 1 recommendation is to implement a standardized sourcing process. They claim this will drastically reduce the estimated 40% savings leakage. There is no doubt that an eSourcing tool will help with that savings goal, even without touching reverse auctions.
One thing that I found interesting and perplexing was to see that SMB companies were claiming larger savings numbers than claimed by large ones. Is this because they strategically source less by nature and thus have larger reductions when they do? Or, could the savings reported be reported higher than the real numbers? Calling Andrew Bartolini…please comment!
Entry Filed under: Analysts/Research, Supply Management Best Practices, Technology, e-Sourcing Marketplace
October 19th, 2007
David Bush - Iasta
Interestingly, only a few days after being sent the Fluor press release, I received this from Supply Chain Brain about the University of Tennessee.
UT’s Supply Chain Management Program:
* Increases supply chain profits, efficiencies, and effectiveness
* Covers all aspects of supply chain management across six, 2½-day courses
* Is taught by UT’s world-renowned, interdisciplinary, SCM faculty team
* Can be customized for your organization and /or brought in-house
* Provides certification for no additional cost
Six courses comprise UT’s Integrated Supply Chain Management Certification Program.
The University of Tennessee was the first school to offer SCM certification. Our curriculum includes over 100 hours of classroom time taught by 14 to 16 UT faculty members. No other certification program meets such professional standards.
UT’s supply chain management and logistics programs are top-ranked in leading business and logistics publications.
As stated by Dennis Criscuolo; Group Director - eIS Global Applications; Smith & Nephew, Inc.
“The University of Tennessee is the gold standard for supply chain management education.”
Of course, its an advertisement but shows another
major university that is showing the commitment to this industry and investing heavily in its growth.
Entry Filed under: General, Supply Management Best Practices
October 18th, 2007
David Bush - Iasta
I was pointed to a very important press release over a month ago. Unfortunately, due to my inability to keep up with my normal daily duties and the breaking news and flurry of posts that came from within the eSourcing industry, I am only now getting to this.
There are a growing number of universities that are building up very strong supply chain departments which would be much like Michigan State, Arizona State, Penn State and others. It is encouraging to see a well respected company, like Flour, to invest so heavily in Clemson to build up the available pool of candidates to choose from. Clemson clearly benefits and would gladly take the investment and Fluor has major operations in SC that this helps keep expertise locally available with specializations of supply chain and construction/engineering.
This was basically the same sentiment of the Clemson top brass.
In accepting the gift, Clemson University President James F. Barker said, “This partnership is a prime example of business, industry, government and academia coming together for the betterment of the broader community. Our partnership with Fluor Corporation and the state match for the endowment reinforce and strengthen our established supply chain programs at Clemson. The quality of research to come will increase significantly and include models for business and industry everywhere.”
Fluor is definitely a company that “gets it” and this is a prime example of thinking big picture and long term. This amount of money is nothing to a company this size and the returns will last for decades and grow. Hat tip to Mike O, thanks!
Entry Filed under: General, Supply Management Best Practices
October 17th, 2007
David Bush - Iasta
Yes, I am gloating.
Its been a good year here at Iasta Global HQ. Of course, being the fastest growing company in supply management is fun and great. However, its also very important to distribute our plaques into other accomplishments!
Even though the 2007 Software 5oo is only available in print right now, I will end the suspense and announce that Iasta was ranked #476. There is an online magazine version available here. It will later be searchable and more web based, for now, its just a pdf.
In the Inc 5000 rankings, our relative size helped us with faster growing percentages. However, in the Software 500, our size makes it harder to make the list. So, this is really nice to make it on both sides of the coin and in a totally different criteria set. Also, we made the Top 10 of the small company category. Any way, we are very happy to have squeaked into the field and be recognized as a fast growing software company.
Entry Filed under: General, Technology, e-Sourcing Marketplace
October 16th, 2007
Michael Lamoureux
Low Cost Country Sourcing, often abbreviated LCCS, defined as a procurement or sourcing strategy in which a company sources materials from countries with lower labor and production costs in order to cut operating costs, is not a new subject. IIn fact, it’s a rather hot topic today. Googling “low cost country sourcing” (without the quotes) generates a whopping 1.9M hits. However, given the dizzying array of information, it’s hard to know where to start.
However, before you start, the first thing you should do is familiarize yourself with the challenges you will need to overcome in order to have a successful project. LCCS comes with a number of challenges that include product quality, supplier quality, resource quality, logistics, reliable delivery, supply assurance, supplier bankruptcy, and the inherent complexity of remote supplier management. Furthermore, the reality is that even today, many large global organizations are not fully prepared to embark on ambitious LCCS projects.
First time LCCS projects, especially those that are poorly planned, are often wrought with budget overruns caused by underestimated transportation costs, additional inventory costs due to uncertain lead times and long order cycle times, bad data, and fluctuating demands. Furthermore, there is a significant variation in supplier capability and sophistication in developing markets, in specific verticals in a specific developing market, and even within individual operations and factories. In China, a factory might have state of the art production equipment recently bought from a U.S. supplier (as a result of the weakening US dollar) but that same factory might not even have the capability to ship a standard palette.
This gives us our first step to success - before selecting a supplier, it’s important to meet with the supplier and conduct on-site visits and assessments. But it’s even more important to do good research on the supplier in a pre-qualification process to make sure the supplier has a decent chance of living up to the requirements, or the organization might end up wasting a lot of time and money. Use third party information services such as those provided by Austin Tetra and Open Ratings, do reference checks, collect detailed information on operations and capabilities through eSourcing tools from the suppliers themselves, and have introductory calls and video-conferences before investing in the remote meetings and site visits required by a full qualification.
The next step to success is to take a total cost of ownership approach when evaluating a potential low cost country supplier - not just a total landed cost approach. This includes increased inventory carrying costs, duties, import and export taxes, and additional financing costs. Furthermore, this calculation must be updated regularly throughout the process, as it can often increase as one progresses further into a project. If the point is reached where the estimated savings are not worth the increased risk, the project should be dropped, at least with respect to the categories one was considering outsourcing.
The final step to success that is going to be mentioned in this blog entry is to hire top-notch external expertise with experience, and this is especially important for small and medium sized organizations which likely lack some of the skills necessary to succeed in a low cost country sourcing effort. It’s true that the right consultant might not come cheap, but the value such a consultant can provide the organization will pay for the consultant many times over once a successful LCCS operation is in place.
For more insights on Low Cost Country Sourcing, check out the Low Cost Country Sourcing: A Blogger’s Perspective wiki-paper over on the e-Sourcing Wiki which includes an interview with Carl Greppin (Transpac Access) and blogger insights on the challenges, destinations, and required steps to success.
Entry Filed under: General, Global Supply Issues/Risk, e-Sourcing Marketplace
October 15th, 2007
David Bush - Iasta
Re-reading the recent Purchasing article Sourcing … The Profession, which I originally blogged about in this post, one can’t help but realize that it’s getting awfully crowded in the C-suite, especially in supply chain now that we have a CSO - Chief Sourcing Officer - in addition to a CPO - Chief Purchasing/Procurement Officer - and a CSCO - Chief Supply Chain Officer.
Of course, in reality, your organization will generally only have one of these individuals, and her duties will be the same regardless of title, and she will be focused in aligning sourcing strategies with business goals, with an eye towards:
- accessing superior technology, skills, and processes
- reducing or transforming costs and avoiding capital investment
- minimizing TCO (Total Cost of Ownership)
- protecting intellectual property
- maintaining control over core competencies
- enabling joint product development
- improving customer service
- creating a “win/win” through mutually beneficial deal structures
- negotiating highly complex service agreements
- managing internal demand for goods and services
- designing effective exit strategies
In particular, this person should be focussed on implementing superior eSourcing technology if it’s not already in place as these technologies will streamline processes, will reduce TCO - especially if decision optimization is used, will identify ways to reduce costs through spend analysis, will help in the creation and tracking of agreements and contracts, will enable product development through the collaboration capabilities they contain, and will help the organization get a much better grip on its overall performance. And it won’t matter what she is called.
Entry Filed under: General, Supply Management Best Practices
October 11th, 2007
David Bush - Iasta
As August came to a close, Aberdeen released their latest spend analysis research study, Working Too Hard for the Money (free, courtesy of Iasta). A few bloggers, like Tim with his Aberdeen’s Spend Analysis Benchmark: The Penultimate Study?,
Why Spend Analysis?, and Spend Analysis: Building the Business Case posts and Eric with his Aberdeen on Spend Analysis: Lost in the Trees post, picked up on it quickly.
In his trio of posts, Tim pointed out the following key takeaways:
- too few enterprises have efficient or effective spend analysis programs
- even fewer utilize automation to make spend analysis an efficient and repeatable process
- disparate data sources, poor data quality, and lack of standard procedures are still chief barriers to spend analysis effectiveness
- enterprises under-performing in the area of spend analysis are at a significant competitive disadvantage
- top performing spend analysis programs have some common attributes
- twice as likely to deploy a solution to automate spend data
collection
- 40% - 90% more likely to establish executive support
- 40% more likely to utilize spend analysis reports that provide
details at the transaction level
- 30% more likely to have enterprise-level visibility into
spend
- spend analysis software delivers the following benefits
- 34% increase in total spend under management
- 75% increase in savings from sourcing efforts
- 33% improvement in compliance with negotiated agreements
- 22% reduction in sourcing cycle time
In his post, Eric pointed out that the report contains a fascinating chart that shows survey respondents’ opinions of the “importance” of data analysis, data management, reporting, and supplier content, plotted against those same respondents’ classifications of their “current ability” in those four areas. It appears that “current ability” deeply lags “importance” in all four of them. He then points out that Aberdeen fails to draw the obvious conclusion from this — namely, that legacy approaches to spend analysis are disappointing their users across the board, despite causing an uptick in procurement efficiency.
And they’re both right - spend analysis will
- increase total spend under management
best-in-class will achieve spend under management in excess of 90%
- significantly increase savings
best-in-class organizations in the study increased savings by 75% on average
- improve compliance with negotiated agreements
best-in-class organizations have compliance rates that are 30% better than all others
- noticeably reduce sourcing cycle time
organizations in the studied averaged a 22% reduction in sourcing cycle time
as long as it is true spend analysis that is properly selected, deployed, and utilized by the sourcing team. As Eric points out, this spend analysis tool will go beyond mere data collection, cleansing, and classification and provide:
- Powerful analysis and ad hoc reporting tools (”data analysis” and “reporting”),
- Flexible and ultra-fast dataset creation (”data management” and “supplier content”),
- Real-time dataset modification (”data management,” “data analysis,” and “reporting”), and
- Flexible deployment (powerful spend analysis is now deployable for small dollars, on individual analysts’ desktops, without an organization-wide commitment).
The Iasta solution, meets all of the requirements of a proper spend analysis solution. If you would like more information on spend analysis, please free free to contact Iasta at any time.
Or, feel free to download the free report from Aberdeen here.
Entry Filed under: Analysts/Research, Spend Analysis, Technology
October 10th, 2007
David Bush - Iasta
The Kimball press machine is in full swing these days. Kimball, which was recently highlighted in a Purchasing article, that I covered in Kimball’s Procurement Transformation, just had another piece written about them. This time, Supply & Demand Chain Executive ran an article by Editor Andrew K. Reese titled Building a Strategic Supply Management Team that also dived in to how skills development helped to transform the sourcing group into a strategic asset at Kimball International that had some good insights. Since the process they used was critical in getting the results I highlighted in my last post, I figured I might as well summarize the process, just in case you missed both of the articles.
When Bob Price, now the Director of Global Supply Chain Management, started transforming sourcing at the Office Furniture Group of Kimball International two years ago, in addition to setting out specific initiatives to make sourcing more strategic (supplier relationship management, category management planning, commodity councils, strategic sourcing and global target setting), he also put in place a fifth initiative designed to provide vital training and skills development to help ensure the success of the strategic initiatives as he realized that the most important investment a company can make is in its people.
Price started by engaging Next Level Purchasing to do a skills assessment of the sourcing team around core areas - contract management, egotiation, and project management. Then Price plotted out a development plan for each staff member that targeted three levels: day to day tactical skills (e.g. contract management & negotiation), commodity specific knowledge (technical competency), and leadership skills. The goal was to build all necessary competencies within the group as a whole to make sure the team as a whole could rise to the challenges inherent in making sourcing more strategic.
As the training progressed, Price found that the development roadmaps were on target and the training met the evolving needs of the team that found their inherent skills and competencies they need to go through a standard make versus buy for any given product. However, one gap remained - globalization. Which products could be successfully sourced from which regions of the world? Price then initiated a process to learn about different countries and regions based on economic drivers underpinning 15 core commodity groups. The evaluation criteria included labor content, internal logistics, supply reliability, intellectual property, currency issues, and political stability. The results were then channeled into a
commodity opportunity matrix which had the effect of assisting the team in global sourcing. The result was an additional $5M of import savings for 2006, for a total of $8.6M in savings from the initiatives.
According to Price, the “trickle-up approach” deployed by the team was the key success factor and the key to execution was not involving the executives but involving the actual people who have to implement the strategy day in and day out. Senior executive support is important, especially for setting strategic directions and goals, but its up to the commodity managers, material managers, product development engineers, and the quality engineers to iron out the execution strategy and get it done.
Great advice.
Entry Filed under: General, Supply Management Best Practices
October 9th, 2007
David Bush - Iasta
In this post I summarize the fourth installment of the CPO Agenda debate series - What Capabilities Do You Need To Operate In A Global Market? that took place in Milan in the Spring. My summaries of the previous debates on World Class Procurement - The British Perspective, Global Sourcing - A Scandanavian View, and The Next Wave of Savings are still archived here on eSourcing Forum.
The debate included Danilo Augugilaro of UniCredit, Stefano Baghetti of Alenia Aeronautica, Paolo Cova of LeasePlan, Giorgio Diazzi of Siemens, Luca Guzzabocca of GlaxoSmithKline, Lorenzo Laurelli of EMEA/Emptoris, and Paolo Mondo of Accenture. As with the last post, I am going to summarize some of the key points from each contributor.
Danilo Augugilaro
e-Auctions have an advantage in terms of opening up the market to foreign suppliers, because the process (when executed appropriately) provides a level of transparency and trust.
Stefano Baghetti
When creating your business plan, you need to consider not only the final costs of the products you buy from suppliers, but also your own costs in monitoring their activities, especially if they are located in a low-cost country. It is important to develop reliable suppliers and to find people inside your company who can develop this co-operation.
Paolo Cova
Leveraging scale and improving the professionalism of procurement at both an international and a local level is one of the keys to profit and competitive advantage in the future. You can better leverage scale if your fulfilment partners are able to leverage it as well. This means, for example, that you have to find international companies able to deliver the services you need and establish partnerships with them. Consider splitting your spend into commodity groups and organize international procurement task forces for each group, composed of representatives from the different companies you operate in or buy from.
Giorgio Diazzi
The real challenge today is to understand what should be done globally and what should be done locally, and how we can get suppliers to provide the right level of service at the global level. Also, today we need people with real international experience, flexibility and competence in process procurement and project leadership.
Luca Guzzabocca
The key critical success factor is to get people skilled and prepared to approach a different environment and to work in teams. Also, you need a clear sourcing process that involves all the stakeholders from different functions. It’s about facts and data. And not just looking at the short-term benefits, but also the medium and long-term impact.
Lorenzo Laurelli
It has to be clear what the strategy is within the purchasing organisation. And, used effectively, technology can push changes in an organisation, streamline the process, bring savings and keep real value within the company.
Paolo Mondo
A global approach should involve the whole company is because you have to take a total cost approach. Also, buyers must have a much broader set of skills and competencies, from technical aspects to financial aspects.
Now, I may not be an expert in globalization, but skilled people, teamwork, the right tools (especially e-RFx and e-Auctions), a solid strategy, total cost of ownership (enabled by decision optimization), leverage of scale (enabled by spend analysis), risk management, good supply partners …that just sounds like good sourcing to me!
Entry Filed under: General, Global Supply Issues/Risk, Interviews, Supply Management Best Practices, Technology
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