Archive for March, 2008
March 7th, 2008
David Bush - Iasta
Recently, Eric Strovink on Sourcing Innovation had a good write up on building momentum with an eSourcing roll out, which amounts to a quick start guide to success.
Eric explains that you can get off the ground with a very small budgeted amount of money, dedicate minimal resources (1) to effectively test, and to target spend analysis. Certainly, all quality recommendations and Michael adds that spend analysis results may provide funds to:
“pay for that new system that will greatly increase your efficiency, and savings, and allow you to go from running a few projects (that could require an almost painful amount of time and effort because - where e-RFX, e-Auction, and optimization are concerned - you get what you pay for) to running a few dozen or more! And that’s when the real savings will begin.”
I would add to this discussion, by saying that companies also need to assess what they want out of an eSourcing platform. Although you can certainly get benefits by taking a low risk approach (a scenario that was not available years ago), it is equally important to commit to the process. If you want to seriously impact how this technology will impact the bottom line, there should be a comprehensive implementation plan and execution which targets categories, training and sustainable adoption. More expensive? Absolutely. Worthwhile? Absolutely.
Entry Filed under: General, Supply Management Best Practices, Technology
March 6th, 2008
Michael Lamoureux
First of all, the doctor would like to point out that he’s thrilled with the level of supply chain coverage that Industry Week has had of late. the doctor realizes that it’s a drop in the bucket compared to the focus they put on manufacturing overall, but it’s better than no drop in the bucket at all. Late last year they published an article that asked What are the Critical Skills of Supply Chain Leaders that the doctor had to read, especially since the doctor spends a significant amount of time trying to answer this question when formulating the seven savors and the seven scruples of a sourcing sensei on the e-Sourcing Wiki.
According to the article, supply chain leaders embody five critical skills:
- Hire the Best and Brightest
This syncs well with the third savor - team builder - so the doctor has to agree with this one. Great leaders surround themselves with the best and brightest. Only charlatans insist on hiring those that they can wield their inferior superiority over. Furthermore, the best will also recruit actively during times of recession - since this is when their team can make the greatest impact.
- Metrics Driven
This syncs well with the first scruple - analysis - so this is another winner. They are also focussed on regular benchmarking, so they can set meaningful, realizable, goals.
- Performance-Reward Orientation
This syncs well with the third scruple - team recognition - so this one gets two thumbs up. They reward performance against goals, and especially those who take action that benefit the whole firm and not just themselves.
- Technology Savvy
This is the sixth scruple - technology - so this is right on the money. Great leaders embrace technology advances that can support more sophisticated supply chain management. They know the difference between real analytics capability and static reports and also when, where, and why to apply decision optimization. They also understand that while technology can enable a good supply chain, it can’t fix a broken one and know when to apply process re-engineering.
- Resist the Urge to Surge
Supply chain leaders understand that end-of-quarter sales surges are disruptive and costly and push to avoid these types of practices. They realize that surges depend on a cycle consisting of inventory buildup for a long period of time - which costs dollars, as well as unprofitable use of capacity - which costs more dollars, followed by a deep discount, which resulted in a lot of sales but the need to temporarily increase capacity - which resulted in overtime costs. And unless you’re producing holiday themed items, chances are this demand can be afforded by pricing your products more appropriately. Consider the example given of a diaper manufacturer who thought that a quarterly sales pattern of “low-low-high” was the natural demand pattern. the doctor surmises that the CEO never had children. Infants and toddlers don’t go through 6 diapers a day for two months and then suddenly double to 12 diapers a day for one month and then suddenly drop back to 6 diapers a day for two months on a quarterly cycle. Demand for diapers is relatively consistent. The only reason the pattern was low-low-high was because the retailers knew that the end of the quarter brought deep discounts, and they could save money by ordering an entire quarter’s supply at the end of the previous quarter, since their inventory costs, relative to the manufacturer’s, were minimal when you consider they could distribute the supply to each of their locations for which they paid overhead for regardless of inventory level.
This skill is important, but it’s actually a critical component of the second scruple - strategy. Because if you happened to specialize in holiday decorations, then you have to surge to make money. The trick is not to resist the urge to surge, but know when it makes sense. If the item is seasonal, or it’s a new product launch, you have to sell big and do it fast, and this will require inventory build-up. (Or you could be a Sony and lose hundreds of millions of up-front sales because you didn’t have enough units to satisfy initial demand.) However, if it’s a staple, or non-seasonal commodity, surging is much more likely to be costly than profitable. You need to know the right strategy for every item you’re sourcing for.
In other words, this is a great set of skills, but it doesn’t necessarily cover all of the skills that you need. They missed the following scruples:
- Compliance
- Sustainability
- Innovation
And even though you can delegate compliance to a senior risk management practitioner, the doctor just don’t see how you can be a great sourcing leader unless you have an eye on sustainability and another on innovation at all times.
Entry Filed under: General
March 5th, 2008
David Bush - Iasta
According to a recent article in Supply & Demand Executive, too often indirect costs - such as utility supplies, insurance, and staff expenses - slip under the radar, and this can have a significant negative effect on the bottom line. However, these indirect costs are often more easily controllable than direct costs, especially with a basic e-Procurement, EIPP, or P2P system, and simply attacking a small handful of missing links can allow a company to reign in these costs in such a manner as to meaningfully address the bottom line.
The article highlighted five key factors:
- Maverick Spend
Maverick spend occurs when an employee buys off-contract or off-policy. Maverick spend can be addressed by removing ad-hoc purchasing capabilities and implementing systems that force preferred suppliers and / or policies to be followed.
- Contract Visibility
Most organizations have dozens (upon dozens) of contracts that lock the organization into hundreds of thousands, millions, or tens (upon tens) of millions of dollars of spend - but very few have full visibility into those agreements, their overall value, or their expiry dates. This will prevent
unwanted evergreen renewals, lost rebates, and penalties that come with failure to adhere to terms and conditions.
- Intuitive Systems
The purchasing staff should be free to focus on core, strategic value-add activities and not have to waste valuable time trying to figure out how to use the system (which they will end up being inclined to bypass if it’s too difficult to use).
- Indirect Cost Control
Make sure you have at least a basic e-Procurement, EIPP, or P2P system in place to minimize the time that needs to be spent on tactical buying and the possibility that someone will buy off-contract or off-policy.
- Integration and Control
Make sure the systems are integrated into your ERP, SRM, and / or financial systems to ensure employees have access to complete, transparent, real-time information.
It’s not everything you can do, especially since there’s no mention of proper strategic sourcing of indirect categories, but it’s certainly a good start.
Entry Filed under: General, Supply Management Best Practices
March 4th, 2008
David Bush - Iasta
On-demand, whatever. This comes from an article I found on Supply Chain Brain by Jeff Kaplan, titled: Top Ten Reasons Why On-Demand Services Will Soar in 2008.
His reasons in summary:
- Services are Recession Proof
- Everyone’s Going Virtual
- Amazon, IBM and Google Bet on Utility Computing
- Nick Carr Returns
- SaaS Solves SOX
- Managed Services 3.0, Unified Communications Services and Service Automation
- Carriers and Channel Companies Find Success With New Services
- Failure Doesn’t Matter
- IT Discovers Services are the Solution
- Wall Street Buys Into Services
You can read the article for details as he describes them. Three of the ten stuck out a little more than the rest.
First is the #1 point, which states:
“The ability to adopt on-demand services on a pay-as-you-go basis will be a perfect sourcing strategy for businesses seeking greater cost-controls and flexibility.”
This is very self explanatory and the SaaS model has ALWAYS been easy for everybody to “turn on and go”.
Next on point #5, which states:
“A year ago, most publicly traded companies and other large-scale enterprises rejected the idea of SaaS because they thought they needed to take greater responsibility for their own compliance requirements. Now, they view the process controls, auditability and offsite hosting features common in most SaaS applications as a perfect solution for their Sarbanes-Oxley (SOX) needs. As a result, enterprise adoption of SaaS will accelerate.”
That is a huge shift of opinion and could be one of the most important foundations possible for a SaaS model. Maybe corporations are starting to listen to and understand the messaging that has been coming out for years from vendors.
Lastly, point #10:
“Wall Street loves the predictability of subscription services and now that it has a solid set of market ‘comps’ to measure business success in the services market, it will be encouraging more privately held companies to go through the IPO door.”
A couple points here. First, we have no intention of going public, but there appears to be many in SaaS that do plan this route. Also, it might give some indication as to why Ariba bought Procuri. Many have said they were looking for a mid-market story and more SaaS revenue.
Finally, point #9 is interesting but I will never bank any value on making IT departments happy. I think the only time they are truly happy, is when they can mope around the office telling everybody how miserable they are because they are too busy to have fun like everyone else.
Entry Filed under: Functionality, General, Technology
March 3rd, 2008
David Bush - Iasta
Charles Dominick sent me a copy of his latest benchmark survey results, titled: 2008 Purchasing & Supply Management Career & Skills Report. It is available for download from his site, on this page. One of the interesting quotes in the summary section was:
Employers are increasingly seeking candidates with certifications to fill open purchasing and supply management positions. Purchasing and supply management professionals possessing the SPSM Certification earn an average of $19,220 more per year than those who do not possess the SPSM Certification. As of January 2008, the SPSM Certification has been earned or is being pursued by purchasing and supply management professionals in over 60 countries around the world.
Of course, this makes total sense. The fascinating part about this to me, is from the business perspective. Charles has made a company from a perceived need (like any business). In this case, because he felt the CPM and ISM were outdated and were losing their value. Dominick mentions on his website:
“So in 2004, Next Level Purchasing launched the Senior Professional in Supply Management (SPSM) Certification Program. The SPSM Certification was the first purchasing certification designed to be both a globally recognized certification as well as the most modern certification, as opposed to being created by a “national” association in decades past. It was meant to give employers confidence that they were selecting the true “cream of the crop” when they made their staff selections.”
It is obviously working, as thousands of procurement professionals are choosing an independent certification over (or in conjunction with) a national association certification, which has been around for a long time. Personally, I think there is more of a story to this. What was wrong with the CPM that created a business opportunity? What was the “A-ha” moment? How long did it take before the dam broke and acceptability was easier?
Good questions and we may never know the answers. Unless…maybe Charles himself would care to elaborate with some more detail about how this all came to be? Open invite for a guest post, Charles. I think it is a very interesting story.
Entry Filed under: General, Supply Management Best Practices
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