Archive for April, 2008
April 30th, 2008
David Bush - Iasta
Supply & Demand Chain Executive recently ran an article that asked Global Sourcing: Is It Really Worth It? Given ever increasing material and labor costs, a declining dollar, rising fuel prices, and increased risk, it’s a good question!
The article listed the following advantages of global sourcing:
- cost, especially w.r.t. unit & labor costs
- access to fresh research, design, or specialized intellectual capital
- availability of new technology and capacity
- supports plans to sell or service locally
- proximity to raw materials
- quality
However, there are a number of disadvantages as well. Although not specifically mentioned in the article, they include:
- cost - transportation, export, and import costs add up!
- quality
- risk
- proximity to raw materials
- lack of a skilled workforce
As the article points out, whether or not global sourcing is right for you depends upon the category, market conditions, and other alternatives you have at your disposal. This is determined by asking the right questions. The questions in the article are a good starting point. They are:
- What are the specific parameters that would make global sourcing a good business decision? Be sure to consider:
- payment terms
- direct costs
- delivery costs
- planning process synchronization
- working capital
- flexibility in production & capacity
- quality
- What are the macro-economic and geopolitical assumptions that could impact this decision through the lifetime of the contract? Be sure to consider:
- direct costs
- potential fluctuations in inflation and currency exchange
- geopolitical environment
- supply chain risk
- special trade preference programs
- government requirements
- How do we monitor these assumptions for change? Be sure to consider:
- timely monitoring of customer demand w.r.t. forecasts
- available sensing mechanisms to detect changes to raw material, labor, & energy costs
- dramatic shifts in currency exchange
- pending legislation or current court cases that could challenge assumptions
- pre-shipment quality issue identification
- early identification of potential delays
- What are the alternative supply sources? Be sure to consider:
- key materials and / or components
- transportation providers
- ports of exit and entry
- What is the exit strategy? (In case things go really wrong.)
Entry Filed under: General, Global Supply Issues/Risk
April 29th, 2008
Michael Lamoureux
I enjoyed the recent article over on Global Services by the title of Wrecking Ball that noted that implementation of new operating models requires the corporate equivalent of wrecking an old building in order to build anew, yet few corporate managers are trained to swing the wrecking ball carefully, communicate in the most effective way to employees, and prepare for the fallout.
As the author notes, for many corporate change managers, preparing to communicate with employees is the last tick in the box. Too many managers assume that the responsibility can be offloaded to HR or the internal communications department when the reality is that only the managers who understand the scope - the work, employees, internal customers and potential impacts - can effectively swing the wrecking ball and manage the inevitable issues that are going to arise from a major change.
Furthermore, communication preparation should begin at the strategic planning stage, not at the beginning of implementation. This is the best time to prepare the right message - which must be clear, factual, and consistently communicated. Employees need to understand the reasons for change if they are to embrace them. As the article notes, simple oblique statements such as “we need to be competitive” can sound like corporate code for increase executive compensation - and is not going to be very inspirational.
Once the core message is drafted, it’s time to list all the affected stake-holders, determine who realizes the rewards and who pays for the gains, and develop a plan to address their specific concerns. This will require targeted messaging to them on top of the basic message. Be sure to plan for the inevitable backlash, and craft appropriate responses as well.
Once the messaging is worked out, you can work out the roadmap and implementation plan as you know you will be able to start delivering the right messaging to the right stakeholders at the right time. This plan should include performance incentives as productively tends to decline precipitously immediately after a major change is announced. It should also include a plan for dealing with voluntary attrition, as some people will get nervous, fear for their jobs, and seek new employment elsewhere. And, of course, constant communication that addresses all of the concerns as they arise.
Entry Filed under: General, Project Management, Supply Management Best Practices
April 28th, 2008
David Bush - Iasta
I love writing about the topic of supply management vendors and the SaaS industry. Nothing gets software companies with itchy trigger fingers so tweaked, which creates a flurry of anonymous comments, meant to defend the business practice of losing money. I will have an permanent escort at the ISM conference, so I don’t get shanked in the restroom.
Hence, when I read an article by Bruce Richardson, of AMR, about the difficulty that SaaS companies have in achieving profitability, I found it very interesting. Apparently, this profitability problem is not isolated to supply management. Most on-demand software companies are pouring resources into sales and marketing and losing the battle. He quoted RightNow’s CEO, as describing the strategy, which amounts to loss leading.
When I talked to CEO Greg Gianforte a few weeks ago, he agreed it costs a lot of money to sign new accounts. These high initial costs can be offset by a successful land-and-expand strategy. He said his annual contract value was running $85K for an 18- to 24-month deal, with the average transaction worth $150K. Most customers will spend eight times what they did on the initial transaction by making five or six additional purchases over the next three years. RightNow offers 30 products.
This means every acquired client is a Vegas dice roll, and a pretty unstable model, from my perspective. Everything is riding on - the upsell. It also demonstrates that the point is not to make traditional profits, but rather, to increase perceived “value” of the company. Fortunately, the old days of throwing in everything, with no intention of monetizing it, have mostly faded away. This practice is highly destabilizing to our industry, as it builds buyer conditioning that there are no costs and it should all be “free”.
Also, from a buyer perspective, understand your TCO. Clearly, if your vendor is losing money to work with you, they will eventually try to reclaim those losses. The alternative is worse, from the buyer side - liquidation or acquisition of your vendor. I see some important things that every procurement organization should ask its prospective partner:
- How much does it cost to acquire $1 of revenue for your company?
If the number is in line with reasonable costs, your vendor is under control and likely has reasonable goals (yes, Iasta fits this category, and I do know what it costs us for every $1 in sales).
If it does not work out financially for the vendor, more questions must come out:
- How long have you been operating under these conditions?
- What is the business plan to correct and stabilize this pattern?
- What other charges will be incurred by our team later, that are not being described now?
- What is going to be the upsell strategy long term with your products?
You cannot forecast everything, but this are very simple indicators which will be directionally accurate.
Entry Filed under: Analysts/Research, General, e-Sourcing Marketplace
April 25th, 2008
David Bush - Iasta
Its a busy day here. Boxes are packed up and heavy equipment is being moved, tomorrow is when the real labor gets going. Since we are a global support center of our software, pulling off an office move is not as easy as unplugging and firing back up. We have been in a controlled burn for weeks now, so to seamlessly switch to our new, spacious accommodations. If I did not write this, no one outside would have ever know so much was happening right now.
Over the last 4 years, we have claimed 3 adjacent suites and lived through the construction. Now, we are starting clean with a better floor plan and all new everything. The extra 100% in square footage is nice, too, with phase II construction already planned to start next May, for another 50%, and part of the 8 year space plan.
All things considered, I think this sourcing thing is working out ok for us. We should be around 50 Indy employees by early 2009 and we have become experts in contract negotiation. Our financial auditors said we negotiated the best lease they had seen come out of Duke Realty in years, as we got the the equivalent terms and price that typically come with minimum 100,000 sq foot HQ re-locations.
So, thank you, procurement world, you have made this possible in more ways than one!
Entry Filed under: General, e-Sourcing Marketplace
April 24th, 2008
Melissa Beuc - Iasta
‘Tis the season for conferences. As a conference provider and participant, it is our hope that attendees enjoy their experience and return home with some added information that will make their jobs easier. In anticipation of the upcoming conference season that includes the ISM conference and reSource ‘08, Iasta’s annual user conference, we thought we would make some suggestions for good attendee participation.
- Bring business cards
If you are not in the habit of traveling, it is often easy to forget these small, yet important business documents. Hand your cards out like winning lottery tickets to everyone with whom you converse. Jot down notes about your discussion so the recipient remembers how they met you. Relationships you build at conferences will serve you well throughout your career.
- It is not about the give-aways
Though most companies offer these trinkets as an incentive to visit their booth, they should not be the only reason you visit a tradeshow booth.
- Network, network, network
A conference’s value comes from both the session content and the networking opportunities. Attendees should constantly network with fellow attendees and solution providers. The conference host usually provides various opportunities to network – breakfast, lunch, dinner, cocktails or activity. Sit next to someone different each meal. Choose a different table after a break. Don’t sit with business colleagues. Invite a speaker to talk over coffee. Collect business cards and make notes on the back so you can remember what you spoke about. Follow-up with key contacts after you get back to the office.
- Strategize your sessions
Your time is limited, so make sure you pick topics that will help you learn something new. If you and a colleague are attending the same conference, go to different sessions and debrief afterwards. Schedule time with the speaker to discuss any additional questions you may have or to get more specific details.
- Leave work back at the office
Often this is the hardest thing to do. Work deadlines don’t go away just because you are on a business trip. So plan ahead. Designate and communicate a backup person at least one week before leaving. Give them direction as to decision making boundaries. Schedule short-periods of time during the conference where you will respond to issues by phone. Limit logging into email during the conference because it is hard to logoff once you start.
- Be prepared with specific questions and feedback
There is a lot of fast-paced activity at conferences. Take some time to think about what you want to learn. Ask specific questions one at a time, based on highest to lowest priority. This makes is easier for the respondent to address questions thoroughly.
Think about what product enhancements would be helpful and why. Describe specific case scenarios to add further clarity. As solution providers we want to continuously improve our products and gratefully welcome feedback.
- Consider presenting at the next conference
The best way to learn is to teach. You improve your own skill set by presenting to your peers. Your unique insights may benefit someone else, thereby adding to the quality of the conference. And finally, presenting at a conference adds credibility to your professional reputation – both within your company, and across the industry.
We hope these ideas will help prepare you for a more productive conference tour!
Entry Filed under: General, e-Sourcing Marketplace
April 23rd, 2008
Michael Lamoureux
Another good article in the recent edition of CPO Agenda is Collection Action by Nick Martindale. (It should be no surprise that I’d pick up on this one, as I’ve been known to preach the “Collaborate, Collaborate, Collaborate, Collaborate” mantra - see parts I, II, III, IV, and V, for example.)
The article starts off by noting that collaborative buying has yet to recover from the hefty blow that it was delivered in the nineties, after a number of GPOs quickly sprang into existence, and then failed even quicker, and that Group Purchasing Organizations are going to have to overcome some formidable obstacles if they are to grow and succeed.
One of the major problems with the original GPO model, which is still used by many of the GPOs still in the market today, is its myopic focus on cost savings. Organizations join because they think that volume-based buying will allow them to get their office supplies, energy, and contract labor cheaper, but end up saving very little and then develop a bad taste for the GPO model. Furthermore, many suppliers loathe GPOs because they believe that the whole point of a GPO is to compress prices and choose the lowest-priced supplier, and this means that it’s often hard to get your best suppliers to bid on the collective contract.
Just like Procurement needs to focus on total value on each and every buy they make, a GPO also needs to focus on total value on each and every buy they make on behalf of its customers. They need to look at the supplier from all relevant angles - cost, capability, service, and value-add. However, even more importantly, the GPOs need to encourage and enable their members to collaborate and share knowledge and best practices so that their interaction with the GPO does more than just save a few dollars on outsourced categories. With the right GPO, a member company should gain as much value from networking opportunities and shared knowledge as it gains from the cost savings associated with having a third party manage select spend categories.
Entry Filed under: General, Project Management, Supply Management Best Practices, e-Sourcing Marketplace
April 22nd, 2008
David Bush - Iasta
I guess it would not be a month in supply management without some tale of woe coming from the vendor community. This time it comes in the form of Davaco Sourcing (notice website does not exist any more). At one time, this company was pretty strong in eSourcing for the retail vertical. They originally started as a fixtures procurement application, but switched to general sourcing functionality in 2003. We had beaten them head to head, but the battles were tough, as they were backed by Davaco Inc., in Dallas.
As described by themselves: “DAVACO is the nation’s leading provider of retail services, specializing in the quality management and execution of high-volume rollouts, retrofits, resets and new stores. Our range of comprehensive services helps retailers from concept to grand opening and beyond.”
From everything I know, Davaco is highly successful and a well run company. I think I even remember seeing their signage on a building in Dallas. However, this did not make the eSourcing venture sustainable. In this instance (to the best I can figure out), the company just did a full shut down, not even announcing it publicly. I would suspect they will keep their IP for the sourcing advisory practice, since it appears the SaaS business model had become unworthy of continuation.
This industry is highly competitive. Anything less than full commitment to the success of a company is adding even more pressure and stacking the deck against your chances of survival. I know they had lost at least 2 major clients to Ariba within the last year, and it was no longer viable. I do not know any one there, but from the outside, this looks 100% financial, as the revenue was not supporting the operation. Since they did not liquidate the company, it is likely that the software is much more valuable to them internally, than to any one else.
The drum beats on. The strong will survive and make this industry stable, some day. The question is, how long will it take?
Entry Filed under: General, Technology, e-Sourcing Marketplace
April 21st, 2008
David Bush - Iasta
Spend Matters Publishing recently wrote a fantastic analysis of a rapidly growing area of focus from practitioners and vendors. It is available for download, from its sponsor, Archstone Consulting.
I will not rehash Jason’s points in this paper, it is well worth downloading. I will say that I can corroborate virtually everything he has stated. This is a massively growing area for Iasta, and likely all eSourcing companies that can work with F1000 sized companies. Integrated services components are critical to success of a coordinated eSourcing roll out. Some times, companies have the internal experts and bandwidth to pull this off, some times, they think they do, and most times, they do not.
To add to his statements with my own experience, companies generally need a standard set of dedicated resources:
- Tactical: This implies just having some one to execute sourcing projects that are teed up, but do not have the necessary bandwidth to complete. This is generally short term and very quantifiable.
- Categories/Assessment/Advisory: Here the company needs more than people to use software to complete tasks. Many times it involves a team of people that are loaded into a particular category or location with a specific savings target, as the goal. There is a large amount of data collection, strategy and execution needed and the time frame could be 1-6 months.
- Process transformation: Much more involved than the previous levels, with less structure and a goal being conceptual, rather than finite. This again is a longer term strategy, but well worth the investment, if the sourcing organization has no..well, organization.
I make a habit of speaking to the leadership of our clients on a regular basis. One thing I can be very confident in, is that no one has extra resources. Procurement staffing is an area that will not go away and based on the results that we have provided, it is one of the absolute locks for ROI.
Entry Filed under: General, Supply Management Best Practices, e-Sourcing Marketplace
April 18th, 2008
David Bush - Iasta
For any one that thought Indianapolis could not hold its own, in the software world, with Northern California…I have news for you. We are making progress today with our own earthquakes rumbling through the area. The first one happened while I was lying in bed at 530am this morning, thinking about ERP integration.
Since then, we have had a number of aftershocks. One of which happened this morning while I was talking to a client in the Midwest. That was freaky, as both our buildings were moving while we were negotiating a contract extension. I have to say, that was a first.
It may be an unconventional approach to competing with Silicon Valley, but baby steps all add up.
Entry Filed under: General, e-Sourcing Marketplace
April 18th, 2008
David Bush - Iasta
Last week I found a great interview about eSourcing. It is available on NLP blog, administered by Charles Dominick. Seriously, I could not have said some of those things better myself.
It was nice to do a little cross-pollination with NLP blog. Charles has built a great business in an unlikely place, and much like Iasta, finding these types of solution providers can be very beneficial to a procurement team in the long run. We hope you enjoy the perspective.
Entry Filed under: General, Interviews, e-Sourcing Marketplace
April 17th, 2008
Agatha Degasperi - Iasta Europe
I took part in a webcast this week entitled “Bringing Contract Management into the 21st Century – 5 Principles Every Procurement Executive Should Know” sponsored by Procurement Leaders.
It is quite clear that Contract Management is starting to add real value to companies. Problem is, too many are still stuck in old practices that result in a lack of visibility, control and inability to manage compliance. I thought it would be worthwhile to highlight some of the key takeaways from this hour long webcast.
What is CLM:
CLM stands for Contract Lifecycle Management and refers to a technology platform(s) that can manage the full lifecycle of a contract (i.e. All governing activities of how contracts are used) which are:
a) Contract Drafting
b) Contract Negotiation
c) Contract Storing and Repository
d) Contract Compliance and administration
e) Contract Renewal
f) Contract Optimization
What are the advantages of implementing CLM (summary of presentation given by Andrew Bartels of Aberdeen Research)
Phase 1 - Contracts reside within one single repository – making it easier to search, analyze and increase visibility into renewals. Already here, there are major cost savings to be had!
Phase 2 - Ability to generate reports and analyze current data – this helps identify duplicates, inconsistencies, and any other potential risks/issues with ongoing contracts
Phase 3 - Automatic contract creation – this helps only use legal staff for critical tasks and shorten the contract cycle times.
Phase 4 - Contract repository integrated with existing transaction systems – this clearly is the ultimate, long term goal of CLM. Where there’s a real time ability to verify that pricing is compliant & meets agreed service levels every time purchases are made – leading to greater conformity of contracts.
Key considerations for successful implementation
a) Aim for some early wins. In other words, don’t try to take on too much in one go. While the ultimate goal is to get all contracts on the system, it is best to go with a phased approach. To prioritize, the key variables to consider are: contract size and degree of activity (start with the contracts driving transactions as these are the renewals you don’t want to miss!)
b) Have a clear system & tool in place for importing existing contracts: ensure the technology you choose accounts for this and establish a system for importing the contracts. Many companies opt to have temps work on this so buyers aren’t bogged down with low value tasks. Furthermore, this step tends to take much longer than expected, so it is good to prepare the resources!
c) Develop best practices around how contracts will be set-up, structured, the verbiage that will be used and the controls that will be in place to manage the contract templates.
d) Maximize buy-in by involving all regions, relevant business units and stakeholders early on in the process. Particularly those close tot he market who are being directly impacted by the lack of visibility and compliance with contracts. Having some early wins with these groups can help serve as a “pull” for those less willing departments.
e) Consider assessing the potential cultural/attitude obstacles to adopting the tool and tackle this early on.
Some other interesting stats presented were that geographically, US appears in the lead of implementing CLM, but Europe is close behind & gaining ground. While the ultimate goal is to reach this phase 4 of integration with transaction systems, the majority of the companies currently find themselves in phase 1: Document Repository. The good news is that there is already tremendous value & ROI to be had with just implementing the first phase, as the increased visibility given will already create savings by helping to not miss renewals and minimizing other possible savings leakage from a lack of contract compliance.
Entry Filed under: Contract Management, General, Supply Management Best Practices, Technology
April 16th, 2008
Oscar Pacheco - Iasta
The recent article on improving SAP suite of product was a very interesting read, not because of what was written, but because of what was omitted. A group of CPOs whose companies used SAP were having difficulty extracting consolidated spend information from their SAP system in different business units and lobbied SAP to improve the product to more easily obtain this information.
Certainly a valid request that will prove useful to SAP users, but there is a large assumption that had been missed here. The CPOs have assumed all of the data from the various systems is “good” data, meaning no duplicate supplier names, all commodity coding is correct, no strange transactions, data from one business unit means the same thing to all business units, etc. If there is one thing for certain (other than death and taxes) it’s that data is never good and always needs a bit of cleaning.
If, in fact, SAP does improve the system, the CPOs will be viewing and making decisions based on flawed information. This is where spend analytics can help. Spend analysis generally involves pulling the information out of the various systems (SAP, or any other data source), performing analyses on that data to improve the quality (such as consolidating the various data sources, consolidating vendors names, categorization, etc.) and then producing reports.
These reports carry much more value and will represent a clearer picture of reality rather than a clouded view. The cleansed information can be used by a variety of groups for various purposes, but is essential to the procurement organization. It can allow them to track spend by categories, GL Account, business unit, region, supplier, and more, giving them the information they need to make the best decisions.
Entry Filed under: General, Spend Analysis
April 15th, 2008
David Bush - Iasta
I am a little late getting to this report from AMR, which is reserved for members only (although SCDigest did provide a little insight, as did Spend Matters).
High level take aways stated that supply management technology is a key enabler for value chain success, reflected by an anticipated 14.5% increase in spending in 2008. Cost savings and procurement efficiency are two of the primary goals desired by purchasing respondents, and also, it was noted that the spend visibility and contract management were ranked 1 and 2 in the list of Most Strategic Investments.
Another interesting statistic showed that Sourcing tools were the most commonly deployed applications at companies over $1b in revenue, at 67%. That is a very strong show of acceptance of eSourcing. It also showed that an additional 27% of respondents intended to deploy sourcing application, which would total 94%. That seems a little odd to me and possibly I am missing the relationship between those two questions.
One of AMR’s key conclusions drawn was:
Our study identifies a shift away from ERP platforms over the next three years for most supply management segments in favor of best-of-breed and custom applications that are expected to provide the greatest innovation, functionality, and transformational capability in supply management.
This was backed by:
The largest supply management budget segment is internal head count. Tied with the ERP platform as the main supply management application, one definitely questions the use of technology and services to integrate and streamline processes in supply management. With high dollars in these three segments, the opportunity for integration, cycle time reduction, and savings is significant. This is good news for supply management technology vendors, service providers, and business process outsourcing firms.
…
While most of the 15 segments in the United States were sourced using ERP platforms, custom and best-of-breed vendors continued to be deployed and appear to be cutting into ERP market share, specifically in the areas of travel and expense, services procurement, supplier connectivity, SPM, supply visibility, supplier portals, and financial settlement.
Clearly, AMR is very bullish on supply management spending patterns, but also are touting the trend of BoB vendors digging into the ERP meat and potatoes.
Entry Filed under: Analysts/Research, Contract Management, General, Spend Analysis, Technology, e-Sourcing Marketplace
April 14th, 2008
David Bush - Iasta
Sourcing Handbook from Iasta.com, baaaby.
Occasionally, a new resource comes along that is really worth spending some time on. A few weeks ago, Iasta Publishing Co, completed its first publication of original work. Most of which is written by Sourcing Futurist and Supply Chain Guru, Michael Lamoureux, who maintains his own blog and is a regular contributor to ESF and ESW.
This is not your typical vendor marketing schlock or PowerPoint clip art. This is a real book, packed with hundreds of pages of powerful best practices content on sourcing and sourcing technology. We decided to release this as an e-book first, with plans to publish in hard copy soon, for easier reading. I am currently working on some ISBN needs, cover design and printing requirements to officially put this on Amazon for purchase.
The e-Sourcing Handbook is a modern guide to Supply and Spend Management Success which utilizes and enhances strategic sourcing technology and best practices. Covering the full spectrum of the e-Sourcing cycle, the handbook helps you understand not only what spend analysis, e-RFx, e-Auction, decision optimization, and contract management are, but where and when to apply these technologies for maximum benefit.
Building on the resounding success of the e-Sourcing Wiki and the e-Sourcing Forum and Sourcing Innovation blogs, the handbook takes the concept of open access to knowledge and best practices one step further by compiling the best information on e-Sourcing to appear on all three public information sources into one definitive source. Furthermore, by mixing content from factual and informative wiki articles with blog postings that are both controversial and opinionated in an innovative manner, the juxtaposition of the two in the handbook allows the reader to see where the boundary lies between information and advocacy. It is the goal of the authors that, through this ground-breaking effort, the reader will gain a better understanding of e-Sourcing and how to take their supply and spend management efforts to the next level.
You may download the e-book version FOR FREE,
from the Iasta website.
Entry Filed under: Analysts/Research, General, Supply Management Best Practices, Technology
April 11th, 2008
Oscar Pacheco - Iasta
Companies spend an enormous amount of money on buying services, including temporary labor, consulting, cleaning, relocation, accounting, security, legal, financial, and on and on. Usually these services are not “direct” cost items and have not traditionally been managed by the purchasing organization.
That has been changing, according to a purchasing.com article, How+Why you should be buying Services.
There are many valid reasons to include services as part of the spend that is managed by purchasing, including of course saving, but that is often not the paramount reason. The article discusses numerous good ones such as reduction in number of vendors, spend consolidation, standardization of services, and cost avoidance.
What is most interesting is that the process of tackling services spend is similar to direct spend, but the approach to sourcing needs to be different. Aspects such as quality, requirements, and quantities are not easy to determine, and are often based on stakeholders opinions rather than hard facts. This may make these areas harder to source but it is worth the effort. Develop a process, use the sourcing tools available and go after services spend.
Entry Filed under: General, Supply Management Best Practices, e-Sourcing Marketplace
Previous Posts
