Posts filed under 'General'
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
April 10th, 2008
David Bush - Iasta
Wikis harness the wisdom of crowds, serving as virtual commons where participants can wrestle over ideas and information until something approaching consensus - or the truth - emerges.
Gardiner Morse, Wikipedia founder Jimmy Wales on making the most of company wikis, Harvard Business Review.
I found the above referenced article to be informative and accurate, as Iasta not only maintains the e-Sourcing Wiki in an effort to disseminate knowledge and best practices throughout the e-Sourcing world, but, like thousands of
organizations from Microsoft to the FBI, uses a wiki to aggregate the knowledge of it’s global solutions delivery team, collaborate on new developments, and improve its overall day to day operations. Jimmy Wales, the founder of Wikipedia, had some good insights.
With half of all companies expected to have wikis by 2009, whether approved by management or not, it’s important to understand what wikis are and what they can do. They’re a great tool for open, flexible, rapid collaboration and a great tool to help people reach consensus quickly, negating the need for the meeting pre-meeting to plan the meeting agenda that plagues Dilberts the world over.
To take full advantage of a wiki, make sure to stimulate the right managerial climate. If people are afraid to modify a page written or edited by senior management, the full benefits will never be realized as the best ideas may never be collected, discussed, modified, and adopted. Managers don’t always have the best ideas, and a good manager is one who is able to identify the best idea generated by his subordinates. He’s there to lead, not to do.
Hat tip to the doctor, who wrote an ode to the Wiki Wonderland, for digging up this article.
Entry Filed under: General, Technology
April 9th, 2008
David Bush - Iasta
If you are in procurement and in the retail industry, you have benefited from a large focus of attention recently. Aberdeen has released a new report, Business Intelligence in Retail: A Best-in-Class Roadmap for Performance Improvement, which deals with improvement on spend under management. And AMR, is having a retail research bonanza in 2008, with the most recent, Sourcing Revs Up Retailers, recently coming out.
These are great reports for the specific industry mentioned. In particular, AMR describes the differences of the retail environment for sourcing:
- Sourcing scale—A retailer often designs and sources tens of thousands of new products or SKUs every year, with sourcing changes across multiple seasons adding to the complexity.
- Consumer centric—Consumer-driven sales place significant demands on the sourcing process, especially in the area of quality assurance and social responsibility.
- Process and systems complexity—Retail sourcing processes and systems tend to be more complex than those found in other sourcing environments.
They mention that this industry is moving into integrated PLM, product design, visibility and collaboration and vendors need to support this functionality. I see this transformation taking a long time, as many retailers are still trying to get a handle on these parts one at a time. However, the point is valid and most companies should be looking long term for advanced, integrated technology.
Entry Filed under: Analysts/Research, General, Supply Management Best Practices, Technology
April 8th, 2008
Michael Lamoureux
The Supply Chain Management Review recently ran an article on Maximizing e-Sourcing through a Center of Excellence where they noted that software alone is not sufficient — organizations must have the knowledge and policies in place to support these tools. The article then says that, because of this, leaders today are establishing Centers of Excellence (CoE) to fully capture the value and savings from e-Sourcing technologies.
As per the article, a Center of Excellence is a small center-led group of sourcing experts who focus on standardizing processes, leveraging technology, capturing best practices, sharing knowledge, and streamlining activities. The model allows the flexibility to tailor purchases at the local level while leveraging corporate spend for strategic categories and commodities. (For a more complete definition of Center Led Procurement, as well as the benefits that normally accompany it, see my three part series: Part I: Introduction , Part II: Center of Excellence, and Part III: Best Practices).
The article also proclaims the benefits that often accompany a CoE and points to an Aberdeen study that found that the savings performance of an organization that has established a CoE is typically 39% better than its competitors. Furthermore, the organization is 32% more likely to have employed advanced sourcing strategies, 54% more proficient in their usage of e-Sourcing technology, and 25% ahead of their competition when it comes to maverick spend.
Considering that other studies from other organizations have reported similar results, there’s no arguing that a well designed and properly executed center of excellence gets results. However, I have to wonder how much is due to the center of excellence and how much is due to the mindset of excellence. It’s not the center that achieves results - but the people. It’s not the technology that the center employs - but the people who use it. It’s not the processes that the center recommends - but the people who
employ them. The mindset to apply best practices, processes, and technologies and be best in class resides in people.
Furthermore, if you have a team that has the mindset, do you really need a physical center? Many organizations like to “centralize” their “center-led” procurement organization in a single location - but considering the global talent crunch, is this really a good idea? First of all, your best talent is probably distributed globally - and many of them probably aren’t going to want to relocate (half-way around the world). Secondly, with the increasingly global nature of business, you need talent distributed globally to help your global teams understand the best practices, processes, and technology and properly apply them. If you think that once a year training sessions in a central location is enough these days, you’re trapped in the past. Thirdly, you can’t always aggregate demand across disparate divisions when each division could be making slightly different goods for different markets with different regulatory requirements. Sometimes demand just has to remain distributed.
Thus, I have to ask whether a Center of Excellence is the answer or if what you really need is a Team of Excellence. Furthermore, do you really need this team centralized in the same office, or can they be distributed out across your global purchasing organizations? It seems to me that if they have a Mindset of Excellence, this is all you need. Furthermore, since you’ll have one or more experts in each of your divisions, it seems to me that not only will you have increased adoption of the mandated processes, technologies, and best practices, but that you’ll get even better performance across the board. Now, it’s true that you’ll need networked persons to pull this off, but hey, it’s the noughts. Get used to it.
Entry Filed under: General, Supply Management Best Practices
April 7th, 2008
David Bush - Iasta
I saw a very informative article on SCDigest about getting out of strategic supplier relationships. Obviously, preparation for this type of event is paramount and the authors give some great advice for moving on. Since nothing last forever, it is important to have contingency planning ready for every supplier. Among some of the tips offered:
Identify it before it goes south, indicators include:
- It takes multiple requests on either side before the action is taken. Early in the relationship, the request-to-action cycle is usually very short.
- It becomes necessary to make requests for items or service that used to be offered without asking.
- The buying organization starts to feel it is being “nickel and dimed” by the supplier.
Develop a plan:
“Stop and identify the interfaces throughout the process. Meet with someone in charge of each step and find out what a change would do to their part of the process,” Lorrie Mitchell, a partner in consulting firm Mitchell Enterprises, recommends. “This is the point where communication will make or break it. Once you have checked out all processes, personnel, cost, etc. repercussions caused by a change of suppliers, you need to socialize this data to your end-users’ upper management. Basically, you have to construct a pros and cons statement of remaining or changing the alliance relationship. When you have facts, you can discuss and get the ever-important buy-in.”
Don’t move without the new vendor in place and all possibilities analyzed:
Legal: It’s ideal to end the relationship at the expiration of any current contractual arrangement, but this isn’t always possible. Companies in that case need to understand commitments, and whether a potential buy-out of that commitment makes sense.
Confidentiality Agreements: Take steps to ensure any agreements made with the partner around confidentiality are not violated, for example with users talking to new vendors about the current partner’s trade secrets.
Intellectual Property Issues: Companies need to well understand and enforce internal restrictions around the partner’s IP. They need to carefully vet and resolve any open intellectual property issues, which may be very tricky if negotiated during a break-up.
I found this to be a really detailed and valuable amount of information, packed into a relatively brief story. There is no one size fits all playbook for such important things, but the advice was general enough to be very helpful.
Entry Filed under: General, Global Supply Issues/Risk, Suppliers
April 4th, 2008
David Bush - Iasta
I am not sure how I missed this earlier, but I did see it from England, at least. Aberdeen had a study which showed a surprising number of CPOs (20%) have no formal plan for purchasing strategy. Almost half did have a plan that spanned over one year, fortunately.
Aberdeen Group predicts 2008 will be the year of the “CPO rising” as they embed their position and their importance to the business over the next 12 months. “Like a Roman centurion, the chief procurement officer leads his/her team from the front lines, exposed on the flanks by an increasingly volatile and increasingly global marketplace and marked by an increasing prominence that demands greater performance,” said the report, which interviewed 350 procurement leaders worldwide.
I will go make an effort to locate this report in the research library. There is likely to be a lot more information in this report beyond this one statistic.
Entry Filed under: Analysts/Research, General
April 3rd, 2008
David Bush - Iasta
This week, the SEC documents from Ariba filing of the recent acquisitions, were made public. Wow, they are packed full with incredible information. For those that do not enjoy reading financial filings, here are some of the gorey details of the string of acquisitions that led us to today.
- Procuri was losing money and not getting close to reversing the trend. -$6.2M in 2005; -$7.6M in 2006; -$4.3M in first 9 months of 2007. So, the bleeding was slooowing, but…you can put lipstick on a pig too. Procuri was not a “pig” but I will explain this analogy later.
- It appears at least $37.5M in venture capital and related debt instruments were used from cradle to grave to create the sale of $92M in stock and cash plus $8M in debt relief.
- Sales were growing rapidly: $17.4M in 2005, $22.3M in 2006, and $21.2M in first 9 months of 2007. Of course, one has to remember there were acquisitions of TrueSource and CMSI that increased this growth percentage. These numbers do not reflect the COST of the growth.
- Procuri paid $2.2M for TrueSource ($1.5M in cash and $684K in Stock). TrueSource only had $5k in the checking account and $150k in AR, at the time.
- Procuri paid $14.1M for CMSI ($7.1M in cash, $562K in stock, $4.6M in debt issuance (a note payable at 10%!), and $1.7M in liabilities assumed) CMSI had $533,000 in the checking account and $858,000 in AR (+ $426K in fixed assets) when acquired.
- Procuri spent a WHOPPING 70% of inbound revenue on sales and marketing expenses (if you can assume most of the COGS were sales/marketing commissions).
The official 10K is not yet available, but this is a very detailed break down of the evolution of Procuri. I mentioned previously that those losses amounted to putting lipstick on a pig. (I have a better analogy, but this is a happy blog). In this case, I am only referring to the investors that essentially cut bait and ran. The two main VC broke even, in VC terms, and ran away from the scene of the crime. When they started this in 1999-2000, they were certainly expecting a 10:1 minimum ROI. To see that they would never even get to 2:1, they took this offer and moved to the next opportunity. It is very likely that a select few managers at Procuri, did have exercisable options that made them quite wealthy (or wealthier), so this was a big pay day for the chosen few.
However, it is obvious that this was ALWAYS the plan, and it worked. Over investment in S/M, with huge losses, paid off in a larger final sale price. The valuation (3.6 : 1) was outpacing the losses and it was a calculated gamble that did not crap out. Although, that is speaking from the shareholder perspective. I do not think any one can effectively argue that the clients were the primary concern at any stage.
Entry Filed under: General, e-Sourcing Marketplace
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