Archive for February, 2008
February 8th, 2008
Purchasing Executive - Global 1000
Today, I would like to welcome a guest post from a practitioner in management at a F500 company. It is this person’s first attempt at blogging and I welcome this opportunity to get reactions from people that have seen many situations from front row. Right now, I have made an account for this budding blogger, and in case you are wondering, they do not work at an Iasta client nor have I ever personally met them. Without further ado…and I hope this will not be the last attempt…
It’s recently been rumored that a major consulting firm is bidding to buy a large sourcing software pro. This idea intrigued me because of my exposure to both, but also because it seemed so anathema to what consulting firms are supposed to provide. What is the strategic objective for such an acquisition? Are they trying to get ahead of the curve on the move away from large procurement systems with huge implementation and maintenance burdens?
My experience with large consulting firms (lukewarm at best) has been primarily around the implementation of these comprehensive, integrated procurement systems. So if one hires an external “partner” (the term used for someone you hire to do something you think you can’t do yourself) to provide independent advice on software alternatives and concomitant process improvements, doesn’t this acquisition compromise the very impartiality you should be able to assume in any recommendations they make? The inherent conflict of interest would necessitate a very hard look at the kind of advice provided by consulting partners when they have “skin in the game”, so to speak. I know that they routinely form “alliances” with many software providers, but the appearance of independence from any one of them in particular could be argued because of the sheer number of alliances they seem to have. Outright ownership of any one product is a different kettle of fish.
At the end of the day, most of the time they seem to provide only one solution to all customers, tailored just enough to look new and different. I must believe that any software which they own would be presented as integral to any proposal they make.
On a different note, will this mean that other large consulting firms will follow suit? As with many industries, the “me-too” mentality among them is alive and well, and few could be considered at that point to be truly independent from the product(s) they own.
Entry Filed under: General, e-Sourcing Marketplace
February 7th, 2008
David Bush - Iasta
Last month, Global Services Media ran an article titled Sourcing: From Art to Science that noted that not only do today’s approaches to managing global sourcing rely primarily on antiquated methods for project scoping, but that they also fail to put into place real-time metrics to assess productivity. The article also notes that nearly half of sourcing relationships that rely on distributed global teams sour and fall far short of expectations. Those aren’t good odds.
The author states that he believes that we need to build a more sophisticated infrastructure of tools and methods to manage the complexity of working globally. This is because global teams create levels of complexity in management, metrics, and productivity that come with a price. Furthermore, the author states that he believes that the answer lies in real-time dashboards that provide instant metrics on productivity and immediate visibility into a process collaboration, problem situations, and new opportunities.
Now, while I wholeheartedly agree with the need for better visibility, I have to say, especially after discussions with the doctor who has his own views on dashboards (in short, they’re dangerous and dysfunctional), that I do not agree that dashboards alone will solve the problem. Although they might tell you, assuming they’re built properly, where you’re not performing at estimated peak efficiency (and where there’s room for improvement), they won’t tell you why or what you can do about it. Plus, if the metrics say you’re doing well, you can be lulled into a false sense of security. This would be bad if someone came up with a more efficient way to do a process, which you completely ignored because you thought you were doing well enough.
To me, the answer is more science, and more visibility, but it comes in the form of collaborative project management and deep analysis. This requires an e-Sourcing platform that is fully integrated and configurable, to give each team member the access he or she needs, and that tracks project status and outstanding tasks in a simple manner that allows quick access to current projects and tasks. Furthermore, and this is key, the platform needs deep analytics - in the form of spend analysis and optimization - to allow the sourcing team to uncover issues and model the total costs of a potential award so that the best decision can be made going in. In other words, more science is the answer to your sourcing pains, but real-time metrics in a dummy dashboard is not enough.
Entry Filed under: General, Optimization, Project Management, Spend Analysis, Supply Management Best Practices, Technology
February 6th, 2008
Michael Lamoureux
Optimization can not only be used to reduce cost, but it can also be used to reduce risk. In this post I’m going to overview how you can effectively support seven common risk mitigation strategies in a proper strategic sourcing decision optimization solution (including the solution offered by Iasta, if you’re wondering).
Capacity Assurance
You can create exclusion constraints that restrict supply to suppliers with a minimum amount of capacity to insure that the suppliers can handle the award they receive. Furthermore, you can create qualitative constraints that restrict award to suppliers with spare capacity to insure you can cope with unexpected demand surges. Although forecasting significantly more demand than you actually have is bad, especially if you stockpile inventory and don’t dynamically order and pull as needed, forecasting significantly less demand and not being able to meet that demand is much worse - because then your brand takes a big hit in the public market, which is much harder to recover from.
Compliance
These days, there are a dizzying array of regulations that may need to be complied with such as REACH, RoHS, Part 11, ITAR, and SOX (etc., etc., etc.), and failure to comply with any one of these regulations can result in huge fines, delayed or stopped shipments, or confiscation and destruction of inventory. Thus, it’s key that you insure that each product you source meets the regulations that you have to meet. Optimization supports this by allowing you to exclude suppliers that don’t meet any of the requirements, and limit supply to suppliers that only meet the standards of some of the countries you ship product to.
Distribution Alternatives
A strategic sourcing decision optimization solution that supports freight lanes can support multiple carriers, allowing you to select the lowest carrier, and lowest cost shipping lane per carrier, between a supplier warehouse and a buyer distribution center. (If the product doesn’t support multiple shipping lanes per carrier for each warehouse-distribution_center pair, you can always create a second instance of the carrier and associate that with alternate routes. You can then account for total volume discounts offered by the carrier by defining the discounts on all instances of the carrier.)
Dual Sourcing
From a risk mitigation perspective, sole sourcing is a bad idea. A really, really bad idea. With decision optimization, you can use allocation constraints to force an award to at least two carriers, and even specify an approximate award breakdown, such as a 20-30-50% split between the three lowest cost carriers.
Incentives / Performance Based Contracts
Let’s face it, some suppliers will perform much better if they get a bonus for good performance. By using negative discounts, you can determine how much a given award would cost you if the supplier performed exemplary under an incentive structure, and by using penalties, you can determine how much an award would cost if the supplier performed poorly (providing you also factored in an adjustment for the higher cost of processing more returns).
Lead Time Reduction
You can use a qualitative constraint to capture the average amount of delivery time for each carrier on each lane and limit awards to a given distribution center, set of distribution centers, or all distribution centers to product from supplier warehouses that can reach the destination(s) in a maximum (average) timeframe. Thus, if you’re selling a product for which demand can fluctuate significantly, you can make sure you can always restock within a given timeframe as soon as the sales data starts to spike unexpectedly.
Price Hedging
Strategic sourcing decision optimization can help you figure out what contract length might be optimal for a given commodity. For example, if your predictions are that oil is going to keep rising for the next year, with a peak price that’s $20 per barrel above what you’re paying now, and your main supplier thinks that it’s going to top out at a peak price that’s only $10 per barrel more than what you’re paying now, and is willing to give you all the oil you need at only $5 more per barrel than the current market price, you can run scenarios for a 6 month demand window and a 1 year demand window at different price points. Then, you can see that if cost keeps increasing at a rate that is only two thirds of your prediction, it’s probably better to hedge for a full year.
And, of course, proper strategic sourcing decision optimization also gives you:
Total Value Management
Since it allows you to capture all your costs - unit, freight, utilization, and impact costs (by way of adjustments) - as well as any discounts available to you from a supplier for the purchase of certain products in sufficient quantities. This means that you’ll always get the lowest total cost of ownership with respect to your business constraints.
Entry Filed under: Global Supply Issues/Risk, Optimization, Supply Management Best Practices, Technology
February 5th, 2008
David Bush - Iasta
Our last newsletter was a big hit, I got a lot of positive feedback and messages from people that even said they had forwarded to others they thought would relate to it. Apparently, it struck a cord with a few folks, so I am republishing it now. If you are not subscribed to Iasta Insights, its easy and you can do so here. It is a bi-monthly produced newsletter that takes on supply management challenges in all forms. Amazingly, it just started its fifth year.
Software Acquisitions: Is Wall Street’s Gain Your Loss?
In the past year, we’ve seen a flurry of acquisition activity in the sourcing and procurement software world. Most recent, industry giant Ariba acquired venture-leveraged Procuri. In full disclosure, both vendors are companies we respect and often run into in competitive situations. But while deals like this might be good for the fat cats on Wall Street, are they really good for customers? A recent article in The Wall Street Journal offers a strong perspective which suggests customers should watch their wallet when it comes to mergers and acquisitions their providers engage in.
According to the venerable daily, as “software companies flesh out their integration plans internally, customers on the outside are left with unanswered questions about their future. It often takes years for software makers to integrate all the products they have bought — if they manage to at all — making it hard for customers to decide what to buy in the meantime. Some customers worry about losing negotiating power in the long run as the number of product choices dwindles. And all the deal making can crimp a CIO’s ability to plan, since it’s unclear which software makers will survive.” But perhaps an Oracle / Peoplesoft customer interviewed for the article says it best: “In my experience [following the acquisition], it’s been a dog’s breakfast wrapped in a nice pretty ribbon.”
At Iasta, we’re not fond of serving up dog food. In fact, we’re the only vendor of comparable customer reach in the e-Sourcing world that we know who has been able to grow organically without acquisitions which would threaten our focus or customer service ethos. But perhaps even more important, what you see with Iasta is what you get. Unlike everyone else we know in the space, Iasta has no outside investors. Early on, this constrained our ability to grow quickly, but over the long term, it has – and will continue – to afford us tremendous freedom to make decisions that are right for our customers over the long-run versus what is best for external shareholders looking to make a buck.
In fact, this last point would appear very close to home given the recent Procuri deal. Procuri – like Iasta – was experiencing sustainable market growth before Ariba acquired them, but it was not enough for investors who had complete control of the company (and who made 90+% of the money on the “exit”). According to Gartner Research in 2007:
“Ariba has several decisions to make in the wake of this acquisition, as no major functional gaps in Ariba’s product line are enhanced with Procuri’s offerings. Instead, Ariba will have two product lines with primarily duplicate functionality. Since Procuri’s solution set is built on .NET, and Ariba’s is not, Gartner believes that the Procuri platform solution is less likely to survive during the next two to five years as a separate technology platform.”
Now, Procuri customers face a choice – work with a provider with a questionable commitment to a legacy application, or consider other options. If early customer fall-out is any indication, many are clearly opting for the latter.
At Iasta, we remain 100% committed to putting our customers first rather than doing deals to keep our investors happy, but which will ultimately disappoint those who matter most – you. Whether it’s through e-Sourcing, advanced optimization, or contract management, Iasta is committed to driving innovation, value and customer success first. We wish we could say the same about everyone else, but then again, they’re not providers who boot-strapped their way to success, one customer at a time.
Entry Filed under: General, Technology, e-Sourcing Marketplace
February 4th, 2008
David Bush - Iasta
Some of you may have noticed a new facade to E-Sourcing Forum on Friday. Please, join me on a brief tour of your new surroundings with updated amenities abound. Some of the highlights include:
- New Presentation: The last design was fine and worked, but honestly, the pink hue that existed on some monitors always bothered me greatly. As ESF grew and grew, so did the embarrassing pinkness. You will notice that I have really tricked out this theme to match our other sites a little better with sharper lines and the triumphant return of Blood Red / Crimson as the dominant color.
- Aggregators: On the right side of the banner, there are now two new tabs labeled Sourcing News and Sourcing Blogs. These are brand new areas of the site that are pulling RSS feeds from important locations such as Spend Matters, Sourcing Innovation, SS | Europe, ELP, Purchasing Magazine, CPO Agenda and many others.
- Structure: This is pretty obvious, but now the Date, Comments and Author are in the header of each post while the categories have moved to the bottom. Registering and Log in are now at the page footer, as well.
- Upgrade: We upgraded to Wordpress 2.3.2 and also changed the captcha technology. Trackbacks were removed a long time ago, so sorry if you ever needed that. The new captcha should be much easier to read. I hope it works, I have been through 4 different ones and the bots cracked all of them. The last one was very good but also could stump a human, which is not the intended purpose.
- Web 2.0 enhancements: ESF now supports Digg and del.icio.us. Not everyone will use or need this, but it can be pretty cool and might even give you some of social networking experience to speak about and understand the trends!
- Traffic Map: This is my favorite enhancement. I found this utility last month while I was working on the redesign. It is a mesmerizing little application that graphically tracks the visitors who come to the ESF home page. Obviously, a lot of traffic back doors its way in from links and search engines, but this is neat tool that shows where active readers are in real time. Statistically speaking, its probably pretty accurate for the reader distribution.
That’s about everything noticeable. Special thanks to Matt and Moses at Iasta HQ for their help, I am very happy with the final outcome and appreciate any comments and patience while any tweaks are needed.
Entry Filed under: General, Technology
February 1st, 2008
David Bush - Iasta
This post does not need to be very long, I just wanted to point out a nice blog by Sourcing Innovation, which describes the difference between eProcurement and eSourcing. Yes, there is a big difference here, but not every one understands this. To this day, I still get people that go into technology review and market evaluation for eSourcing but reference eProcurement. Michael’s chart is comprehensive, yet simple. As described by the doctor:
“Without procurement, the organization wouldn’t have a large transaction database and extensive visibility into spend, the key to a successful spend analysis effort, which is the first phase of e-Sourcing. And without sourcing, there would be no strategically negotiated contracts to buy against, and procurement managers would be spending willy nilly, making the current level of maverick spending that you have to deal with pale in comparison.”
Thank you, please drive through.
Entry Filed under: General, Technology, e-Sourcing Marketplace
Next Posts
