Posts filed under 'Spend Analysis'
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
February 14th, 2008
David Bush - Iasta
The Supply Chain Management Review recently ran an article on how to accelerate sourcing cycle times that had some good suggestions on how to keep your sourcing cycle lean and mean.
According to the article, obstacles that prevent the rapid execution of a quality sourcing process typically fall within one of the following four categories:
- insufficient and/or inaccurate data
good sourcing needs good data; be sure to clearly define and articulate what data you will need before the project begins
- poor process definition and knowledge
you should have standard methodologies and processes, and standard templates for each major category to insure that the team doesn’t have to “re-invent the wheel” every project
- insufficient resources
strategic sourcing requires dedicated resources; although one can automate tactical purchasing, the very nature of strategic sourcing is that it requires qualified, intelligent individuals concentrating on the problem
- lack of corporate culture for sourcing
sourcing affects multiple business units; they must be aligned to ensure success
The article then goes on to focus on two areas that can make a difference: spend data and talent.
Good strategic sourcing starts with a detailed spend analysis project that identifies the opportunities and illuminates the data you will need to conduct a successful sourcing project.
But in the end, it comes down to the talent assigned to the project. As the author points out, successful sourcing requires creativity and perseverance, drawing heavily upon:
- teamwork and collaboration
- leadership and communication
- analytics and problem solving
- broad expertise that encompasses project management, legal issues, and technical skills
Virtual teaming with collaborative processes and access to improving analytics and toolsets is creating the means for speed, the framework for results and the platform for sustaining category leadership despite the constant flow of talent … as long as the right e-Sourcing platform is in place to support it!
Entry Filed under: General, Spend Analysis, Supply Management Best Practices
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
January 31st, 2008
Sean Delaney - Iasta UK
In a previous entry I talked about how the utilisation of Spend Analysis software makes the rational of a vendor reduction programme less relevant. When reading the latest report from The World Economic Forum on the risks for 2008 I am convinced this logic will now start to gain more momentum.
According to the WEF there are 4 major risks to be aware of over the forthcoming decade. What is most disturbing is that all 4 will have an immediate effect on sourcing decisions.
In summary these are:
• Systematic Financial risk – this has already been well documented in recent weeks. The lack of liquidity in markets will have a negative effect on business investment and therefore increase capacity constraints in the global supply chain.
• Food Security – Global food prices are at record highs whilst stocks are at 25 year lows….”population growth, lifestyle changes, use of crops to manufacture bio fuels and climate change – are likely to sharpen over the coming decade”. There is already evidence of this in the UK. During the last 10 years land used for Agricultural purposes has fallen by 8%. In addition land still in use is increasingly being used for the production of Bio fuels. The price of wheat is at all time high. Furthermore during the same period the population has grown by 2m to 60m – this is predicted to grow to 69m by 2027!
As anicdotal evidence of the scale of the shift the other day I was at my son’s children party. When I was talking to one of the Dads he mentioned that an old colleague was, until recently trading currencies and he is now trading livestock in Australia…buying millions and millions of dollars of cattle one day and selling the next. What’s more is he is achieving higher returns than he was when he was trading currencies.
• Supply Chain Vulnerability – “Improvements in technology and global logistics, along with reduced trade barriers, have led to a historic expansion of international and intra-regional trade over the past 20 years”. Although this has widely been seen as a benefit the WEF are saying now our risks are too concentrated in core areas. For example the concentration of raw material ownership in the hands of say State controlled funds or the impact on wage price increases in China.
• Energy – the increasing demand for energy coupled with the requirement to reduce CO2 emissions is going to cause difficulties. I am already seeing the growth in the demand for specialist energy buyers to mitigate organisational risk. However when we see 17% increase in fuel bills universally applied by all suppliers, clear evidence of collusion in the market and what is worse more political influence on the supply it seems that such a move is now punitive.
I would like to add a fifth risk that since none of these risks were mentioned in the same report for 2007 volatility caused by globalisation should be added too!
From this it is quite clear that there is need for global supply chains to be more diverse and as mentioned before this can be achieved with decent (real time as possible) spend analysis. Furthermore this technology should be used to monitor production, commitments and deliveries. Reports should also include commitment further down the supply chain.
The use of sourcing optimisation technology is now essential and especially the use of “what if” scenarios is a must. In fact the speed of change could require optimisation scenarios to be computed more frequently and not just at the point of “award”. This would allow for the inclusion of such things like the effect of climate changes to raw material stocks or the increase in the average wage in China.
It is now obvious that it should be a priority to use both of these technologies. However what has struck me is that combining these technologies together would achieve far more powerful results. I don’t know the exact probabilities by my guess is that the benefits would be exponential and thus reduce the probability of major a catastrophe in a global supply chain.
Entry Filed under: Analysts/Research, General, Global Supply Issues/Risk, Optimization, Spend Analysis, Technology
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 4th, 2007
David Bush - Iasta
Recently, there was a fine article on spend analysis which was written by Tariq Hassan, of The Buying Triangle. (Apologies, this site uses frames and I cannot link directly to the article.)
Hassan suggests that spend analytics is coming back into favor with CPOs for a number of reasons. One such reason was described as: {companies} can keep the entire process within the procurement department or you can use a mix of services to handle some of the heavy lifting, freeing your team to focus on the analysis and on extracting value from the system.
Amen, brother! I mentioned this Monday in my Sourcing Innovation post, where I described the shift to autonomy and self sufficiency within procurement.
He sums up the article at the end with sound advice:
Information-based companies such as Google are proving that nothing is more critical than the delivery of timely information. Spend analytics is the source of timely information for your purchasing group and that information provides your team with the ability to impact the bottom line. Purchasing groups must become “kings of information” and make spend analytics their number one priority for 2008. Stakeholders are clamoring for timely spending information and this is the right time for purchasing groups to rise to the challenge of providing it.
For even more high quality information on spend analysis, download a free copy of Aberdeen’s latest report, courtesy of Iasta.
Entry Filed under: General, Spend Analysis, Suppliers, Supply Management Best Practices, Technology
September 25th, 2007
David Bush - Iasta
Last month, SupplyChainBrain, ran an article written by Ashok Santhanam of Bristlecone. I did not see any one highlight this article, so I thought I would bring mention to it.
Santhanam does a nice job of highlighting the typical problems that manifest in corporations, many times with very expensive back end ERP systems not solving the problems in the slightest. Issues such as data inaccuracy due to inconsistent coding system within companies or across divisions, bad item level coding and no linking to industry standardized codes (SIC or UNSPSC), inter-company linkages, and special classifications within the supply base.
He also breaks down three phases of implementing a spend analysis solution, as almost 900 other companies have done (although this number pales in comparison to the 8,000 eProc deployments)
- Cleansing and building: Merge, map and augment are the easy ways to describe the details of the launching of a SA program.
- The data now exists in a normalized and constructive format, its time to start the analyzation process to look for outliers and opportunities. Iasta does this by building spend cubes and custom data dimensions.
- Take action. All the data will begin telling stories, many times very scary stories. Its time to put together a plan and go after aggregated sourcing opportunities or consolidate the supply base, as examples. We also like to propose opportunities where invoicing errors have occurred on major categories, leading to millions of dollars in overbilling and subsequent opportunity for credit reconciliation.
The article concludes with sage advice based on his years of experience:
It’s important to keep in mind that spend analysis and optimization efforts not be viewed as a one-off project. Some organizations may view a large spike in savings from doing a spend analysis one time as reason enough to stop. But for most companies, a long-term program will help a company continue its success by preventing maverick buying, encouraging contract compliance and reducing the practice of buying from multiple suppliers at different prices.
Under a long-term program that combines projects with a managed service program through a trusted vendor, clients can build upon a history of data cleansing and analysis work without having to initiate a new process from scratch each time procurement problems escalate. This approach is the surest way to future-proof your initial cost-saving results.
For even more high quality information on spend analysis, download a free copy of Aberdeen’s latest report, courtesy of Iasta.
Entry Filed under: General, Spend Analysis, Supply Management Best Practices, Technology
September 11th, 2007
Michael Lamoureux
Spend analysis is the process of aggregating, classifying, and leveraging spend data for the purpose of gaining visibility into cost reduction, performance improvement, and contract compliance opportunities. It is part of an overall spend management and visibility process that includes the analysis, award, and monitoring of corporate spend. Additionally, it is the first and last step of the strategic sourcing process that drives total value. But it’s more than determining (i) who is buying (ii) what (iii) from whom (iv) when (v) and where (vi) and at what price. It’s about finding opportunities for savings across your organization, as obvious and non-obvious as they may be.
For example, here are five applications of spend analysis:
- Commodity Analysis
Build a separate, commodity specific dataset to determine how much of a commodity an organization is buying, if it’s being charged consistently, if the charges correspond to any contracts in place, and if there are any opportunities for spend consolidation.
- Rebate and Refund Collection
Did you know that you’re probably paying too much for your office supplies and high-tech equipment? Some of the more innovative consultancies have found that many office supply and high-tech companies overcharge across the board, even when contracts are in place. For example, many large organizations sign “best price” agreements with a high-tech supplier for all computer purchases over the next year, but in reality, if they don’t watch prices, most often end up paying the same amount throughout the length of the contract term for the exact same configuration even though prices tend to decline a few percentage points every month for a given hardware configuration. Also, if office supply agreements are for fixed quantities, such as a 10-pack laser printer toner cartridges, it’s often the case that an organization will end up paying (significantly) more per unit if they order less or more. And then there’s the rebate - which you only get if you order a certain volume and, in many cases, prove it and ask for it. I’m not saying these overcharges are the product of willful malicious intent on the supplier, but that such inconsistencies can slip through both parties if proper systems are not in place to properly process invoices and analyze spend.
- Maverick Spend Identification
$10M in negotiated savings is simply that - $10M in negotiated savings. For the savings to hit the bottom line, the contract, and all its terms, have to be adhered to. If your buyers still buy off contract, you could lose out on all of the savings, and more. Spend Analysis can not only detect how much spend is off contract, but if proper data is kept, it can identify which supplier is getting the bulk of the maverick spend, what department is causing it, and, in some cases even the individual behind the problem.
- Fraud Reduction
Most employees are decent, hard working people. In fact, most are more honest than the employers they work for. (And if you don’t believe me, read the Freakonomics book or blog which chronicled Paul F. and his honor system bagel operation where he found, with 20 years of data to back it up, that executives are often less likely to pay on an honor system.) But if your company is large enough, chances are you have one or two bad apples trying to defraud you. And even though they might not be trying to ring up $241,000 at a strip club or charging you 998,787 to ship two 19-cent washers, chances are, if they are of the right persuasion, they are bilking you out of thousands of dollars a year. Without a good spend analysis tool, how will you ever find out that your salesperson is submitting the same 378.65 receipt for customer entertainment 6 times, or that your new executive is not only paying for customer entertainment on his new corporate credit card but his own golfing excursions as well, or that the 378.65 charge from a generic entertainment company is not for a meal for 4 client representatives but for your new executive’s lap dances at his favorite strip club? Don’t laugh and don’t say that never happens - it does - and sometimes all too often at big companies that have transactions that is an order of magnitude more than their accounts payable department can process and review manually.
- Opportunity Assessment
Not only can it tell you who is buying what from whom, when, where, and at what price, it can tell you whether or not there are large variances in the spend for the same commodity, whether spending conforms to appropriate market indices (assuming you have access to such data), and whether there are opportunities for supplier consolidation or rationalization. The limits of a good spend analysis tool are only those imposed by your own imagination.
For considerably more information on the Spend Analysis process, it’s benefits and associated best practices, see the Spend Analysis and Opportunity Assessment
There’s Gold in Them There Hills … Of Data wiki-paper over on the e-Sourcing Wiki. In addition to a thorough overview on the spend analysis process, technology requirements, and technology approaches, it also describes, in detail, what spend analysis really is, why it is necessary, what the various approaches to it are, the challenges associated with a project, and some of the more common applications to which a sourcing professional can apply it.
Additionally, you may elect to download a free copy of the latest Aberdeen research on spend analysis, which is available via this link.
Entry Filed under: Spend Analysis, Supply Management Best Practices, Technology, e-Sourcing Marketplace
September 6th, 2007
David Bush - Iasta
Gather around E-Sourcing Forum readers, I have an offer for you! Iasta has sponsored the latest Aberdeen Benchmark study on Spend Analysis, titled Spend Analysis: Working Too Hard for the Money. Just follow the link and you will be given access to download the report directly from Aberdeen. As a teaser, here are the details from the Exec Summary.
Executive Summary
While enterprises are clearly able to recognize and communicate the benefits of utilizing spend analysis technology, they have not yet bridged the gap to action. Sixty percent of organizations currently rely on manual tools to collect and analyze spend data, resulting in limited spend visibility and the inability to improve cost savings.
Best-in-Class Performance
Aberdeen evaluated over 700 enterprises in July and August of 2007 and distinguished Best-in-Class enterprises by the percentage of enterprise spend under management. Best in Class enterprises in this study are notable for their superior performance and credit spend analysis solutions for delivering the following benefits:
- 12.7% savings due to sourcing efforts based on spend analysis data
- 9.1% reduction in manual correction of spend cleansed and classified
- 73% rate of compliance to contractual agreements
Competitive Maturity Assessment
Best-in-Class performers shared many common characteristics with respect to their spend analysis strategies. Best-in-Class companies are:
- 40% - 94% more likely to establish executive support for spend analysis initiatives
- 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
Required Actions
- Establish executive support by demonstrating the ROI of a spend analysis investment
- Know what you can and can’t do – establish a baseline for spend analysis capability
- Move beyond sourcing cost savings – contract compliance will also positively effect the bottom line
Spend Under Management
The classic measure of procurement’s impact upon an enterprise is the percentage of non-payroll-related spend that falls under management of this group, what is commonly
referred to as spend under management. Aberdeen research has shown that enterprises have been able to achieve a 5% to 20% cost savings for each new dollar of spend brought under management.
“If you take away spend analysis capability from a company, you might as well turn the lights out on the procurement department. Then all they’ve become is a transactional processing group that doesn’t add much value to the organization.”
- Vice President, Large Property and Casualty Insurance Enterprise
Entry Filed under: Analysts/Research, General, Spend Analysis, Supply Management Best Practices, Technology
June 11th, 2007
Sean Delaney - Iasta UK
62% of respondents to the recent annual ISM survey said they received bonuses on top of their regular salaries. On average the bonuses received were around 16%.
Personally I like the idea of rewarding individuals based on their performance. However, the largest element of the bonus measure is often based on the organisations performance. The downside to this is that it does not reflect the individuals’ performance and is therefore less motivational.
When attempting to measure the performance of procurement, organisations will resort to such tactics as rebates, which frankly, is a very blunt stick. It does not take into account supplier performance and non price improvements like client web portals etc.
So what is the solution?
I do believe that the time is now right to start to look at rewarding procurement differently. The benefits of eSourcing are easy to measure. Whether you conduct a live event or closed bid the resulting commercial benefits are transparent and auditable.
But what about the implemented savings achieved I hear you say? So often when it comes to implementing the most commercial sourcing strategy the stakeholder will allow some leakage in the award. As we know from a recent Aberdeen survey this leakage is typically around 2%.
As procurement professionals whilst eSourcing takes us part of the way towards accountability, I think new developments in SRM and Spend Analysis software complete the accountability circle. The automation of the complete sourcing process makes it more economical to quickly measure performance post contract award.
The ability not only to measure the negotiated benefit but to also monitor ongoing performance of suppliers now make it possible to reward procurement in a much more motivating fashion.
However, with any measure, it must not be too cumbersome to collate, it must align the individuals’ goals with the goals of the organisation, it must be transparent, and finally individuals must be able to track performance regularly. Here are some ideas for measuring performance (please feel free to suggest some more):
- Implemented savings – this is to ensure stakeholders have buy in.
- OTIF reports
- Customer satisfaction - use online surveys to measure.
- Customer satisfaction – measure complaints.
- Design – e.g. in retail, measure number of top selling designs.
- Quality – number of returns.
- Contract compliance – measure % of spend through the contract.
Through Spend Analysis, and ultimately SRM tools, these measures can be automated and weighted. So, in your next performance review with your boss save everyone’s time and make the following proposal:
- 50% salary standard and guaranteed.
- 15% based on organisational performance.
- 35% based on the implemented deal benefits (based on the criteria listed above).
I would be interested in your feedback on their responses, however, I suspect they may not be ready for such a radical change.
Entry Filed under: Analysts/Research, General, Spend Analysis, Supplier Performance, Supply Management Best Practices
May 23rd, 2007
David Bush - Iasta
Browsing through the Aberdeen site recently, their recent report on Supply Chain Cost-Cutting Strategies: How Top Process Industry Performers Take Radically Different Actions caught my eye. As someone who has spent the last seven years trying to help companies lower costs and increase returns, I was interested in finding out what strategies are working for process industry companies.
According to the report, companies should evaluate their operations and supporting technology to ensure they effectively accomplish the following:
- centralize key elements of the supply chain management organization
- work toward end-to-end data and process visibility throughout the supply chain to improve utilization of manufacturing capacity and distribution efficiencies
- move to more frequent inventory policy review (multiple times a year) and improve ability to sense changes in customer demand (aim for five days or less)
- upgrade supply chain applications, deploy supply chain optimization, and move to a closed-loop planning and execution technology framework, and
- view supply chain management as a competitive differentiator.
The report also identifies the top supply chain transformation goals for process industry companies:
- data and process visibility
- cross-functional metrics
- closed-loop integration of supply chain planning & execution
- centralized supply chain management organization
Good advice, and good advice, but I was a little disappointed that they did not point out the importance of good eSourcing and eProcurement tools as part of your end-to-end supply chain technology solution as these platforms lead to better centralization in supply management as well as improved data visibility and metrics.
Entry Filed under: Analysts/Research, General, Spend Analysis
May 21st, 2007
Sean Delaney - Iasta UK
I know this has been written about before but we cannot under estimate China’s effect on world economic growth over the last 15 years. The low wage Chinese economy has been a major influence on prices and in some instances deflation in most developed countries.
However, is the party all going to come to an end? More crucially what impact will this have on our low cost country sourcing strategies?
Let me elaborate…..in a recent article it stated there were some concerns about the state of the Chinese economy but there is a danger that these concerns could be “prone to being overdone”.
Taking this article on its own then I would agree with this summary but when you take this in the context with other factors I think the issue is a lot bigger.
Firstly, this year China has tentatively raised interest rates in an effort to slow growth. However, this intervention has had little effect with GDP increasing from 10% in Qtr4 of 2006 to approximately 11% in the first quarter of 2007…and that’s the official line real GDP and inflation could be a whole lot higher.
Secondly, the central bank allowed some limited realignment of the exchange rates (it is still estimated that the currency is some 15 – 20% undervalued). Since interest rate rises have had little effect it seems obvious that the Government will have to intervene in exchange rates to stem demand for exports.
Thirdly, in an effort to standardise the corporation tax system the Chinese Government are planning to increase the corporation tax for foreign companies from 15% to 25%.
Fourthly, if that wasn’t enough there are signs of wage inflation within the economy both in white colour and blue colour workers.
Finally, due to the developing worlds’ insatiable demand for commodities, prices are at an all time high. Since these are generally input costs it seems inevitable that output prices would need to rise to compensate.
I could be accused of overdoing the issue here but it seems to me that the price pressures are real. Somebody said once that if it looks like a duck and quacks then maybe it is a duck!
In much the same way during the 70’s the dependence of the industrialized world on OPEC oil was exposed when prices were increased dramatically. The question is, could rising price of Chinese exports have the same effect?
In my opinion, the Sourcing community is certainly going to have some challenging times ahead. For example, at which point do you change your policy on Low Cost Country Sourcing, what are the triggers and when are they likely to arise?
In many instances, this decision is already finely balanced, for example, the long lead times are not exactly suited to say the retail industry.
Take Arcadia (£1.8bn turnover) clothing retailer in the UK made the strategic move to shift production from the Far East to countries like Turkey. Highly Fashionable products can be on the shelf 3 weeks quicker than sourcing from the Far East.
eSourcing has to play its part but the question is how. Here are some thoughts:
- Increase the visibility of your spend. If you are not doing so then start using spend analysis software. This will help to understand areas of spend that have been untouched.
- In conjunction with SA, projects will have to be run on a much more frequent basis. Look at smaller values and train administration staff to host projects.
- Cost avoidance projects are as important. Do not take incumbent supplier price increases on the chin. Spend time analysing the pricing matrices and possibly share the benefits of projects.
- Cost saving and sharing with third parties. Look at the opportunities and be realistic about the time scale v’s the benefit. If the analysis says it will work – make it and dedicate resources to it. The next collaboration project will be easier than the last.
- Dedicate more time to nurturing the product develop process. Influence spend decisions earlier. (Far Easier to accomplish if staff and processes are aligned with the organisations eSourcing goals).
It is difficult gauge the exact timing and the exact impact. However, what I do know is that each country will feel the impact differently and those without a flexible exchange rate could be more at risk. Of course, I could be “overdoing” the risk?
Entry Filed under: General, Global Supply Issues/Risk, Spend Analysis, Suppliers, Supply Management Best Practices, e-Sourcing Marketplace
April 11th, 2007
David Bush - Iasta
Last month, Purchasing Magazine ran a story named Avoid a mess, clean your data which focused on understanding and managing your expectations when launching a spend visibility application. This is a very helpful article for any organization that has designs on moving into this type of technology. The benefits of spend analysis are wide and virtually guaranteed; however, it is a totally different paradigm than eSourcing. Where sourcing is more of a turn-key application, which can be enabled by the vendor within hours and have the company creating projects within days, spend analysis is a completely different animal. Says Ken Hartman of Boston Scientific:
“”The main issue that we’re seeing that I think companies will face is what the industry calls ETL: extract, transform and load,” he says. “The vendors want to show you the analytics and the dashboarding and all that stuff because everybody really likes shiny things, and that’s what they are. What they don’t show you is the greasy stuff that makes the shiny stuff work, and that’s the ETL.”
Ken is a very smart, good guy and straight shooter who I have always enjoyed speaking to. I particularly like his comment because it gives a real testimonial of the heavy lifting that comes with deployment of most spend analysis tools. There is no getting around the fact that the data must be normalized, loaded, cleansed and then cubed. You get the benefits — AFTER all of this is accomplished.
You separate the men from the boys once you have the data. At this point is when your software can parse data on the fly, create new dimensions for viewing, ease the pain for refreshing and merging, and create suppliers links to find the true total spend per item, group or vendor. Most spend applications have advanced to a point that many of the front-end problems are greatly reduced these days and especially SmartAnalytics which streamlines many aspects of the initial process such as translation, loading and chopping of data sources. This drastically reduces the pain of data manipulation.
Entry Filed under: General, Spend Analysis, Supply Management Best Practices, Technology, e-Sourcing Marketplace
March 12th, 2007
David Bush - Iasta
Spend analysis pure play, BIQ, has been named to an exclusive list by Gartner Group - Cool Vendors in Supply Chain and Procurement, 2007. Four vendors were awarded the honor this year and I count this as a tremendous accomplishment for CEO, Eric Strovink, one of the truly good guys in the industry. Also named was Supplier Enablement specialist, Vinimaya. I have much less experience with Vinimaya and Gary Hare, but hear similarly good things about them. Per the Gartner summary: “New entrants, such as BIQ, FreeFlow, TrueDemand and Vinimaya, are driving innovation in the supply chain and procurement application markets.”
“Without the ability to build their own data cubes and modify the structure of the data within those datasets, the business analyst can’t explore with spontaneity. By putting a better set of tools into the hands of people doing the analysis, and making the dataset creation process easy, we’re helping our customers build many different kinds of datasets. Armed with great data visibility, commodity managers can find many more opportunities to save, enabling them to deliver value again and again over time,” stated Eric Strovink.
The full report is available to Gartner clients, and should be nice boost of exposure for the four vendors mentioned. On a side note, this is definitely good news because BIQ and Iasta are technology partners. The BIQ engine makes the backbone of the Iasta SmartAnalytics platform and further validates the strength of the total solution for strategic e-Sourcing. I have seen first-hand, many things in this technology that make it truly unique and compelling for spend visibility.
BIQ/SmartAnalytics allows point-and-click creation of data dimensions and measures, along with real-time construction and deconstruction of data hierarchies. This eliminates the time, expense, and technical resources needed to make changes using conventional data warehouse tools. Analysts can quickly identify who is buying what, how much is going to which vendors, how one group’s spending compares with others, and how spending and demand compare to previous periods or to other benchmarks.
It is definitely refreshing to see other vendors in the space get recognition on merit and hard work, two principles that we believe in very strongly.
Entry Filed under: Analysts/Research, General, Spend Analysis, Technology, e-Sourcing Marketplace
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