I recently had the opportunity to chat with Cognizant’s Ramesh Gudalur, Head, Global BPO, and Paul Roehrig, Director of Strategy for Cloud Business Solutions, regarding the implications of Cloud Computing for BPO.
Bill Huber: Frame the big picture for our readers… How does Cognizant see the cloud impacting the way in which BPO services are delivered?
Paul Roehrig: Broadly speaking, multiple converging contextual forces such as the reset economy, intense businesses pressures, the increase of millennial workers, and the maturation of cloud-enabled technologies and collaboration have created a set of force vectors causing end users to search for new delivery models.
Most enterprise decision makers will not suddenly move all technology and process services to a cloud-based delivery model.
Our belief is that cloud based solutions are beginning to offer disruptive advantages when woven together with more traditional delivery models. Looking at services as “cloud” or “not cloud” might not be the best direction to take things. Very few enterprise decision-makers are ready to suddenly throw everything into a cloud delivery model. Smart concerns about security, the ROI of cloud services, legacy applications, etc., will continue to keep decision-makers cautious about widespread sudden leaps to cloud services. But in spite of concerns, cloud-enabled next-generation solutions can offer disruptive levels of productivity improvement and business enablement. We believe that our role as a service provider is to help customers appropriately deploy cloud-based solutions and to navigate around major issues and questions about security, ROI models and the true value of cloud-enabled solutions. Cognizant sees its role as an innovator/integrator/guide to help customers find the optimal balance of cloud enablement with traditional delivery methods.
Cloud enablement cuts across all lines of service from a horizontal and vertical business perspective. Increasingly, Cognizant sees itself integrating offerings such as Software as a Service (SaaS), Infrastructure as a Service (IAAS) and consulting and analytic services along with BPO to deliver an end-to-end solution for key processes. The real “over-the-horizon” take on this is that next-generation deals are just beginning to emerge at the enterprise level. These deals demonstrate a new class of solution weaving together infrastructure, applications, and business process services, and delivers business outputs back to customers via more of a consumption-based billing model. These cloud-enabled vertically aligned solutions require deep understanding of the business and leverage global service delivery and a robust alliances ecosystem to deliver disruptive levels of value to customers.
BH: What example can you use to illustrate how this happening?
PR: We have some examples of these solutions in clinical data management and analytics as a service in our Life Sciences business, and we’re actively pursuing more of these next-generation deals. Several other service providers also have examples of these solutions, and industry analysts and advisory firms are also indicating that these business process solutions are gaining traction. Based on a foundation of cloud services and traditional capabilities from providers, customers have a new opportunity to create differentiation based on innovation leveraged into more progressive service offerings. It’s early days, but these are real solutions delivering real value today—not just slideware.
BH: How is Cognizant incorporating this into its broader strategies?
Ramesh Gudalur: We don’t want this to be a flavor of the day and are using the cloud as a key infrastructure to drive thinking and improve capabilities to our customers in capital markets, life sciences, health care, finance and accounting, clinical data and other areas. The cloud is a component in our ability to create a very differential offering with a view toward client impact.
For example, envision a SAAS platform on which end users can do insurance processing or end user rights management. These solutions, as good as they are, are only an application and not an end-to-end solution. There are many pieces missing from a pure SaaS play that a service provider can and should add to the solution. Depending upon the solution, the client could still have complete access to that platform while achieving a much higher level of operational performance.
In vertical processes there is a need to change processes to drive the next level of value. For example, in health care claims, new processes have been implemented to put multiple types of claims together and analyze them concurrently rather than in a sequential manner, driving a whole new level of business intelligence. As industry wrappers are created that can change processes, you actually achieve changes in the process available on the cloud that will affect multiple companies. The result is the avoidance of significant reinvestment by clients. Buyers need to unbundle processes in a different way to drive increased value. For example, they now have the opportunity to think about “Claims in a Box” type solutions and to focus on the insights from analytics of the data rather than being a claims processor. This will help them to move from a claim-centered view of processing to an issue-based view of processing, driving higher fraud impact identification and mitigation, for example.
BH: What should clients do differently in going to market?
PR: There is an opportunity for advisors like TPI and others to help drive a new view of cloud-enabled business process services within their clients. Advisors can help their clients to understand the change to solution sets and offer clients new ways to better take advantage of these emerging technology and commercial models. IT decision-makers are starting to rightfully conclude that it is time to start thinking differently about how to utilize technology. Those advisors who keep everything entirely templatized may put their customers at greater risk because value could remain locked in the nostalgic inefficient process and technology. Cloud-enabled technology and commercial models can also provide benefits through business analytics and lowering run rates. Business and technology decision-makers should start doing several things now to take advantage of this emerging trend. First, build a vision—not just slides—for next-generation sourcing solutions. It’s a great time to clarify and refine what the true technology and business goals are and then wrap the sourcing strategy around those goals. Keep in mind that help is available. Service providers, advisory firms, etc., are all positioning to help navigate new service models and business implications. Also, get smart about next-generation solutions. Pick less-critical functionality—storage, email, platform-as-a-service (PaaS) and SaaS offerings seem to be the most common pilots—and get smarter about cloud services by trying them out. Then go search for true business solutions.
By: Cynthia Batty, Global Competency Lead, Service Management, TPI
You are in the second year of a service provider relationship, and your first relationship manager is ready to roll off to a new assignment. Your service provider has offered two candidates to interview – what should you ask them?
You’ll want to know how they perceive the service provider’s role: you need someone who is experienced and smart, with the wits and wisdom to discern when things need to be changed or improved. You want someone with the guts to stand up for what is right – no matter which side that might be. You need dedication to governance ideals, to innovation, to a good and peaceful relationship, and to working together with each player in the environment. Here is a list of questions you might consider asking your two candidates, by category.
Experience
What is your experience in managing other relationships? What were the areas you found most challenging to the relationship?
If you could change one thing about your last engagement, what would it be and why?
Have you found situations where you would have recommended the client organize themselves differently than they were? What was the situation and how would you have changed it?
Governance
What kinds of governance meetings do you think are important in a services relationship? How do you see the service provider’s role in the governance meetings?
How would you help your client ensure that the services remain aligned to the business needs?
Do you think that the contract must be amended from time to time to keep the relationship in synch, or should the contract be a static document?
Services
What do you think makes for the best service delivery structure in a services relationship?
How important do you think service levels are in a relationship? The statement of work?
Relationship
What are the things you think make for a successful services relationship?
How do you approach problems in the relationship?
What are the things you think are most damaging to a services relationship, and how do you work to ensure that these challenges are addressed?
How do you approach the paradox that it is your job to deliver services to the contract and budget, while the client is motivated to get whatever they need to manage their business requirements?
Innovation
What do you think your role is in ensuring that innovation is encouraged and developed in the services relationship?
Integration
What is your perspective on working with other service providers in the environment? What is the best way to work together effectively?
How do you plan to work with the client’s retained IT organization?
Business Process
What are the strong points of your company’s approach to business process with clients? What would you change if you could?
When you know each candidates position on these areas, you will be in a good position to make a truly informed and three-dimensional decision about who is right for you – and if neither candidate meets your criteria, ask for another one.
Add commentMarch 18th, 2009Sean Delaney - Iasta UK
I have been desperate to take some time to read this article in SM on the A to Z of SRM. It is a big topic anyway but I was still hoping that It would offer some clarity on what is SRM. However, it gave me a lot more. The speakers highlighted at the SRM conference in Geneva outlined how they interpreted SRM within their organisations and what benefits it gave. Let me summarise, by speaker:
BP, Bill Knittle – he believes that successful SRM programmes “require about 70% behavioural change and 30% process adjustment”. Bill went on to say that it had taken between 24 to 36 months before he could get suppliers to talk. Success must be linked to organisational goals like shareholder value which will reward innovation, growth and efficiency. Finally, Bill observes that Relationship management skills require a totally different skill set.
I totally agree with this ideology. Procurement can learn so much from their Sales & Marketing brothers across the desk. There are those who are good at acquiring business, and those who are better at managing the business….Hunters v’s Farmers. The “levers” that Bill adopted to reward suppliers are interesting, but in reality, with such a large organisation like BP, one suppliers efforts will have minimal impact…I would like to know more about the exact mechanism for measuring performance, as I feel this should always be realistic and achievable.
AVIVA, Sheilagh Douglas-Hamilton – SRM function is a department within procurement. Sheilagh suggests it is all about getting a deeper relationship with your suppliers and tapping into their resources like innovation and design. AVIVA have realised savings of £100m directly from SRM activity. What is interesting is that Sheilagh agrees with Knittle, that SRM managers need different skills than Category Managers.
Again, I would like to know more about how that £100m breaks down and by what mechanisms this benefit measured. What is really interesting is how AVIVA have organised themselves to manage SRM, and again, the different skills required.
BUPA, Steven Pink – Steven’s thoughts on SRM are much more simplistic and he gives the example of when he joined the business from BA there was an adversarial approach to suppliers. He summarises be saying their objectives were to align goals and create more efficiencies between both parties.
I think there is more to this – again what levers were used to measure and encourage a change in behaviour? This is starting to sound like the old Partnership agreements that were common during the late 80’s and early 90’s.
Diageo, David Lawrence – David suggested that SRM could be improved by reducing audit fatigue. David suggests this could be achieved by collaborating with other buying organisation in their sector. They use the International Labour Organisation conventions and the UN global compact as platforms to qualify suppliers.
I agree wholeheartedly with David’s sentiments to reduce audit fatigue. However, I do not believe alone that this constitutes SRM. I believe there are now automated processes in place to make measuring far simpler. Furthermore I also believe that SRM is not only about working with the large suppliers but also nurturing the new, small and innovative types as well. After all, sharing the same supply base with your competitors does not give you competitive advantage.
MacDonald’s, Joseph Youssef – Joseph believes that SRM needs executive sponsorship and a long term approach. It helped McDonald’s create greater visibility in the supply chain, foster innovation and for suppliers it allowed them to reduce costs by eliminating needless sales activity. Joseph interestingly pointed out that the focus shouldn’t be on the big picture and should focus on “one area at a time”. Benefits achieved from SRM activity have been $3.5m per year over the past 4 years.
This is interesting and quite different than BP which clearly focused on the bigger picture. Executive sponsorship is mentioned for the first time, but in all these organisations SRM wouldn’t have dedicated resources without it.
British Airways, Paul Alexander – BA were motivated to focus on SRM firstly after industrial action within the supply chain and secondly due to lack of competition within the supply chain. Paul believes that SRM will have a major part to play in the future because BA’s experiences will be felt by many more as scarce resources become scarcer
This is interesting perspective in many respects BA could be ahead of the curve in their thinking here. However, after reading this extract, I couldn’t help but feel that this had the look and feel of one of those Partnership approaches, rather than SRM. Also, should SRM be driven by “well, we have no other option”, or more about making both organisations more competitive?
This article has certainly given me food for thought. Is SRM just an advancement on the Supply Partnership theme used in the late 80’s/90’s? What mechanisms should be used to measure and change behaviour? Should it be less measurement based to avoid audit fatigue?
However there are some common themes here:
• Executive Sponsorship
• Dedicated resources to SRM
• Mirror Customer Relationship Management in your SRM methodology and approach
• Use some measurements to change behaviour and align goals
• Regularly update success criteria so it is aligned with the organisational goals
What is still unclear is:
• What measurements should be used?
• How much measurement?
• Is it a Partnership or something different?
This post originally appeared on ESF on March 24, 2008.
In the interview, he highlighted four areas the procurement leaders can differentiate themselves.
“If I see how some of the leaders are really differentiating themselves, I would highlight four elements. First, they are looking at cutting non-working money in a strategic way, refer to it as strategic cost management. I also see that they are preparing for winning the war on talent, so that you can prepare for recession by getting very good talent instead of focusing on cutting procurement headcount like some others would be doing.
“Third, I see a lot of investments in analytics; so a lot of business insights. A struggling economy also means uncertainty, so you wonder ‘how can I get the best insights for my category managers’. Last, and not least, it’s a real opportunity to tighten the relationship with suppliers for innovation, because we see leaders accelerating their innovation agenda and breaking away from the pack during the recession by tapping into innovations through their suppliers.”
Its not surprising to see talent being an area of focus, he goes on to say that adding headcount with superior talent is a great idea. (I agree, but that sounds like turning around a aircraft carrier). He also brings attention to investment in technology, specifically spend visibility, as I interpret it.
I think getting ideas from experts like Kris Timmermans is a very good idea. Companies such as Accenture get visibility into all kinds of strategic ways to conquer challenges. In recessionary environments, it is essential to find quick methods to improve results, and listening to people that have seen many different approaches, will be very prudent.
Knowledge@Wharton had an interview with David Lee, of Boston Consulting Group, on the topic of China sourcing, covered on Supply Chain Brain. The interview is very in-depth on the issues with managing the sourcing process where China is involved. One particular area of focus was regarding supplier identification and outreach.
Chinese suppliers do not always have the same capabilities and the quality level can be highly uneven.
But on top of that, we have a very non-transparent supplier market. We don’t have, for example, a lot of the supplier databases that you would like to have in the Western world. When they first come to China, the first major problem a lot of companies face is: Where do you find a good supplier? There are definitely a lot of suppliers out there, but whether you can find a good one will be a big question.
In the West, things are relatively easy in terms of identifying the supplier market, so you can always go to some database and download a list of suppliers that are capable.
In China, there’s no such database. Everybody says they have some database, but our experience has been that most of the databases are about 50% wrong and then another 10% to 20% are outdated. So, you never really can find a very good supplier database.
Often, you need to do a lot of legwork before you can do the sourcing activities. This becomes very dangerous and very difficult for a lot of people who have no experience working in China. We have seen in a number of companies, when they do China sourcing, instead of casting a wide net to find the right supplier, they usually follow whoever your competitors are sourcing from and go find those suppliers.
I think these are very accurate and educated statements. The concept of embedded/integrated supplier networks in an eSourcing tool comes up frequently. Many practitioners think a supplier database will be a pot of gold, revealing all the best suppliers that China has to offer. This is simply not the case, no matter what database is being used. I agree with David Lee that traditional Western countries have good data that is accurate and can be trusted, but LCCS countries have very unreliable data.
Most sourcing projects involving LCCS suppliers should involve a multi-faceted approach to building a quality supply base. First, static data can be used to cast a wide net. After that, suppliers should be cross-linked and qualified through other sources, like an eSourcing supplier list that can be verified of past participation and a history of work and performance with demanding purchasing organizations. Additionally, I would always recommend the investigation of bringing in consultants that have experience with the category and supply base. Sourcing from China is a major decision with long lasting impact (good, bad or both), upfront investment will contain some of the risk that will undoubtedly exist.
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.
ELP, who recently changed their name to build a more global presence, ran a series of short interviews of UK based supply management pros. I was particularly intrigued by the discussion with, Christopher Barrat- Director, The Greystone Partnership, who took a very pragmatic and realistic approach to the future of procurement.
If you want to make predictions on the weather then its statistically true that most likely conditions tomorrow will be broadly the same as today- providing you don’t get on a plane and fly to Barbados.
At the macro level, business conditions within the space of one year are not going to change very much. The dollar may get a little stronger with the end of Bush closer, and oil may get a little cheaper with minuscule improvements in Middle East security, but there will be no seismic change.
Likewise for procurement, the broad canvas will be in the same colors. We will seek more influences, more skills, more value, more leadership, more corporate social responsibility, and none of this will be new. The skill is to make the business equivalent of getting on the plane to Barbados. If you want your predictions to come true than you have to make it happen yourself.
My predictions for this year, is that it will work out exactly the way you intended. The challenge is getting your intention-your true intention aligned in the direction you really want to go in.
Ahh, some sage advice with a dose of realism. I have heard so many war stories of grand plans that fall short, it is nice to hear a prediction that is not Pollyanna. I would reckon that Barrat has seen his share of crumbled regimes.
Add commentMarch 24th, 2008Sean Delaney - Iasta UK
I have been desperate to take some time to read this article in SM on the A to Z of SRM. It is a big topic anyway but I was still hoping that It would offer some clarity on what is SRM. However, it gave me a lot more. During a recent SRM conference in Geneva, the speakers outlined how they interpreted SRM within their organisations and what benefits it gave. Let me summarise, by speaker:
BP, Bill Knittle – he believes that successful SRM programmes “require about 70% behavioural change and 30% process adjustment”. Bill went on to say that it had taken between 24 to 36 months before he could get suppliers to talk. Success must be linked to organisational goals like shareholder value which will reward innovation, growth and efficiency. Finally, Bill observes that Relationship management skills require a totally different skill set.
I totally agree with this ideology. Procurement can learn so much from their Sales & Marketing brothers across the desk. There are those who are good at acquiring business, and those who are better at managing the business….Hunters v’s Farmers. The “levers” that Bill adopted to reward suppliers are interesting, but in reality, with such a large organisation like BP, one suppliers efforts will have minimal impact…I would like to know more about the exact mechanism for measuring performance, as I feel this should always be realistic and achievable.
AVIVA, Sheilagh Douglas-Hamilton – SRM function is a department within procurement. Sheilagh suggests it is all about getting a deeper relationship with your suppliers and tapping into their resources like innovation and design. AVIVA have realised savings of £100m directly from SRM activity. What is interesting is that Sheilagh agrees with Knittle, that SRM managers need different skills than Category Managers.
Again, I would like to know more about how that £100m breaks down and by what mechanisms this benefit measured. What is really interesting is how AVIVA have organised themselves to manage SRM, and again, the different skills required.
BUPA, Steven Pink – Steven’s thoughts on SRM are much more simplistic and he gives the example of when he joined the business from BA there was an adversarial approach to suppliers. He summarises be saying their objectives were to align goals and create more efficiencies between both parties.
I think there is more to this – again what levers were used to measure and encourage a change in behaviour? This is starting to sound like the old Partnership agreements that were common during the late 80’s and early 90’s.
Diageo, David Lawrence – David suggested that SRM could be improved by reducing audit fatigue. David suggests this could be achieved by collaborating with other buying organisation in their sector. They use the International Labour Organisation conventions and the UN global compact as platforms to qualify suppliers.
I agree wholeheartedly with David’s sentiments to reduce audit fatigue. However, I do not believe alone that this constitutes SRM. I believe there are now automated processes in place to make measuring far simpler. Furthermore I also believe that SRM is not only about working with the large suppliers but also nurturing the new, small and innovative types as well. After all, sharing the same supply base with your competitors does not give you competitive advantage.
MacDonald’s, Joseph Youssef – Joseph believes that SRM needs executive sponsorship and a long term approach. It helped McDonald’s create greater visibility in the supply chain, foster innovation and for suppliers it allowed them to reduce costs by eliminating needless sales activity. Joseph interestingly pointed out that the focus shouldn’t be on the big picture and should focus on “one area at a time”. Benefits achieved from SRM activity have been $3.5m per year over the past 4 years.
This is interesting and quite different than BP which clearly focused on the bigger picture. Executive sponsorship is mentioned for the first time, but in all these organisations SRM wouldn’t have dedicated resources without it.
British Airways, Paul Alexander – BA were motivated to focus on SRM firstly after industrial action within the supply chain and secondly due to lack of competition within the supply chain. Paul believes that SRM will have a major part to play in the future because BA’s experiences will be felt by many more as scarce resources become scarcer
This is interesting perspective in many respects BA could be ahead of the curve in their thinking here. However, after reading this extract, I couldn’t help but feel that this had the look and feel of one of those Partnership approaches, rather than SRM. Also, should SRM be driven by “well, we have no other option”, or more about making both organisations more competitive?
This article has certainly given me food for thought. Is SRM just an advancement on the Supply Partnership theme used in the late 80’s/90’s? What mechanisms should be used to measure and change behaviour? Should it be less measurement based to avoid audit fatigue?
However there are some common themes here:
• Executive Sponsorship
• Dedicated resources to SRM
• Mirror Customer Relationship Management in your SRM methodology and approach
• Use some measurements to change behaviour and align goals
• Regularly update success criteria so it is aligned with the organisational goals
What is still unclear is:
• What measurements should be used?
• How much measurement?
• Is it a Partnership or something different?
There was recently a two part interview on SCDigest with Ed Marien, emeritus professor at the University of Wisconsin and director of its Supply Chain Logistics Management program. During it, I found some interesting quotes about the sourcing dynamic in some of his answers.
First off, he feels there is a talent and training issue with many buyers not understanding or bothering to breakdown the total cost of ownership. This is somewhat shocking to me because almost every buyer I know does this regularly. In reading that, it seems likely that procurement teams that have invested in, and use, eSourcing technology are more skilled and progressive than some of their SMB or less mature sourcing brethren.
Marien also points out that many procurement teams are stretched to thin, as well. Expediency becomes more important than anything else. This is another classic benefit of eSourcing and shows where an investment in technology would allow the same number of buyers to source more projects, instead of re-order processing.
He also quoted saying, “As you get into more complex strategic sourcing relationships, it takes a higher skill level and also a higher level of teamwork to make the right decisions. Purchasing and Supply Management specialists need to understand the role of total costs and not just prices in making sourcing decisions. Various alternative cost models depend upon how firms are strategically sourcing products and services. The payoff can be huge if buyers gain understanding of alternative price/cost models.
The bottom line is to assess product/service criticality with the goal of calculating the value and payback of moving from commodity-type buys of products and services to strategic sourcing. Strategically, top management must review their buying processes and determine if they will allocate resources to strategic sourcing with suppliers for cost efficiencies and/or competitive advantages.”
It’s a pretty interesting interview and not one of the typical backslapping types that make everyone look smart.
The debate included Claire Brabec-Lagrange of Thales, Claire Dacier of Alstom, Xavier Cassignol of FCI, David Chambeaud of Thomson, Phillippe Courregelongue of Emptoris, Jean-Pascal de Casanove of Messier-Dowty, Sylvain Fresnault of La Poste, Laurent Jehanin of Safran, Luc Jodry of SFR, Marie Christine Jonon of Alstom, Pierre-Francois Kaltenbach of Accenture, and was charied by Geraint John of CPO Agenda.
As with the previous posts, I am going to summarize some of the key points from each contributor.
Claire Brabec-Lagrange In the past, purchasing was not part of the [strategic planning] exercise, which mainly involved sales and strategy, operations and technology. Now we are part of this strategic exercise and this has made a huge change because it has led purchasing to get closer to sales and strategy in order to understand where the business wants to go and what will be the requirements in sourcing.
Claire Dacier We have to create a strong partnership inside and outside the company.
Xavier Cassignol In my view, it will be less about cost – almost nothing about cost – and probably mostly about how many alliances, how many partnerships, how many joint ventures you have built and how deep they are with your suppliers.
David Chambeaud What we see coming up now and over the next three, four, five years is the need to expand our capability to source not just traditional commodities, but also to manage new areas of spending. The second thing is for sourcing to challenge our business partners, who can be suppliers but also new providers of technology. It’s about innovating and finding new partners, new sources. The third point is that, more than ever, sourcing will need to be a “junctioning” function, mastering communication between operations and R&D. I don’t think any company in the future will be able to invest in every aspect of sourcing; you need to invest in talented people, good communicators, business-driven people, not just good negotiators, who can manage superior customer relationships. If you want to invest there and in IT tools and integrated systems, then you will have to choose.
Phillippe Courregelongue
There are three things you have to focus on: get the basics right, work on compliance to make sure cost reductions are actually hitting the bottom line, and agility to adapt to changing market conditions.
Jean-Pascal de Casanove We should also have a role to define best practices in the organisation.
Sylvain Fresnault We shouldn’t also forget the importance of purchasing in sustainable development. It’s changing our relationship with suppliers and customers.
Laurent Jehanin The challenge for purchasing is to lead supplier relationship management within a properly qualified team. The aim is really to position purchasing in the whole company process. The first change will be to involve purchasing in the negotiation phase with our customers because the size of what is purchased has become bigger. The second area is the involvement of purchasing early in the R&D process to be sure we can attract the best of suppliers’ innovation and that we are involved in optimising the make-or-buy decision by providing an analysis of the marketplace. The objective is really to make the best of the supply chain, but we can’t base that only on cost because it’s not sustainable. Sustainability is not just about being green or socially responsible, it’s also about the model we can project.
Luc Jodry The basics are about cost, but I agree that we have to go further and maybe get into profit management – what will our supplier bring us in terms of innovation?
Marie Christine Jonon Currently, we don’t consider our suppliers as partners and don’t invest in the innovation of our suppliers. Now, because of internal growth, our main target will be to push our suppliers and to help them to innovate and to be a preferred customer.
Pierre-Francois Kaltenbach I would make five points about future challenges. In terms of career path, we are still far away from a situation where you can offer your best buyers a clear perspective. My second point is about profit centres. I think all CPOs are struggling to justify their contribution, to measure savings. The third thing is outsourcing. I think a lot of the indirect purchasing and the requisition-to-pay process will be outsourced, so that you will see big indirect and process factories in low-cost countries. The fourth point is about innovation because there are companies now that have innovation objectives. And the fifth one is about integrated supply chains, because when you are looking at what your customers and suppliers are doing, sourcing on its own doesn’t make sense anymore. You need to be part of a global supply chain, not just look at your suppliers and try to cut costs.
Wow! Best Practices. Compliance. Supplier Relationship Management. Supplier Performance Management. Strategic Planning. Collaborative Partnerships. Outsourcing. Talent. Sustainability. Profit Management. The Centralized Business Function. Innovation. What a great debate – and what a great article! Unfortunately, some of this stuff is at the edge of my area of expertise. I’m an e-Sourcing guy. Have been since day one – and will be until every need of every one of my customers in e-Sourcing is met. So, rather than try to summarize it and take it further on my own, I’ve asked Michael Lamoureux, the doctor of Sourcing Innovation and regular guest contributor here on eSourcing Forum, to write part II of this post.
The debate included Danilo Augugilaro of UniCredit, Stefano Baghetti of Alenia Aeronautica, Paolo Cova of LeasePlan, Giorgio Diazzi of Siemens, Luca Guzzabocca of GlaxoSmithKline, Lorenzo Laurelli of EMEA/Emptoris, and Paolo Mondo of Accenture. As with the last post, I am going to summarize some of the key points from each contributor.
Danilo Augugilaro
e-Auctions have an advantage in terms of opening up the market to foreign suppliers, because the process (when executed appropriately) provides a level of transparency and trust.
Stefano Baghetti
When creating your business plan, you need to consider not only the final costs of the products you buy from suppliers, but also your own costs in monitoring their activities, especially if they are located in a low-cost country. It is important to develop reliable suppliers and to find people inside your company who can develop this co-operation.
Paolo Cova Leveraging scale and improving the professionalism of procurement at both an international and a local level is one of the keys to profit and competitive advantage in the future. You can better leverage scale if your fulfilment partners are able to leverage it as well. This means, for example, that you have to find international companies able to deliver the services you need and establish partnerships with them. Consider splitting your spend into commodity groups and organize international procurement task forces for each group, composed of representatives from the different companies you operate in or buy from.
Giorgio Diazzi The real challenge today is to understand what should be done globally and what should be done locally, and how we can get suppliers to provide the right level of service at the global level. Also, today we need people with real international experience, flexibility and competence in process procurement and project leadership.
Luca Guzzabocca The key critical success factor is to get people skilled and prepared to approach a different environment and to work in teams. Also, you need a clear sourcing process that involves all the stakeholders from different functions. It’s about facts and data. And not just looking at the short-term benefits, but also the medium and long-term impact.
Lorenzo Laurelli It has to be clear what the strategy is within the purchasing organisation. And, used effectively, technology can push changes in an organisation, streamline the process, bring savings and keep real value within the company.
Paolo Mondo A global approach should involve the whole company is because you have to take a total cost approach. Also, buyers must have a much broader set of skills and competencies, from technical aspects to financial aspects.
Now, I may not be an expert in globalization, but skilled people, teamwork, the right tools (especially e-RFx and e-Auctions), a solid strategy, total cost of ownership (enabled by decision optimization), leverage of scale (enabled by spend analysis), risk management, good supply partners …that just sounds like good sourcing to me!
Recently, in their Spring 2007 issue, CPO Agenda ran an executive debate in London with the goal of answering the question What does World-Class Procurement Look Like?. The debate included Andrew Boyd of Britvic, John Collington of the Home Office, Andy Collopy at BP, Philippe Corregelongue of EMEA/Emptoris, David Gilmour at Pilkington, Ben Jackson at Network Rail, John Kirby at Barclays, Heather Rodgers at Centrica, John Taylor at AstraZeneca, Beverly Tew at the BBC, Michael Walsh at Home Retail Group, Ian Wilmot at Lloyds TSB, Rob Woodstock at Accenture, and Geraint John of CPO Agenda and offered some interesting insights from the other end of the pond into what qualifies as World-Class Procurement. I’ll summarize some of the key points from each contributor.
Andrew Boyd It’s the effectiveness of the teams that work with the business to drive value that matters.
John Collington To be seen as world class we have to take into consideration views from four constituent parties. The board level, the people within procurement, the customers within the organization, and the suppliers that deliver the goods and services. Also, JC Suggests that it’s the people within the function who sometimes are, and can become, world-class performers.
Andy Collopy We have people who are technically proficient at what they do, whether they are good negotiators or they understand contracts, but that’s not enough anymore. Some of the softer skills are becoming much more important. Also, it’s about competitive advantage.
Philippe Courregelongue Both the investment in enabling technology and the upskilling of procurement staff are key characteristics of organisations striving to achieve and maintain world-class performance.
David Gilmour Learn a lot from your suppliers, depend on them to get it right, to keep the supply chain as short as possible, so that your customers get the product when they need it.
Ben Jackson A substantial impact on business performance.
John Kirby Driving change through the supply chain is a business process, it’s not a sourcing process or a procurement process, so it’s absolutely imperative that you have both the suppliers and your internal customers engaged.
Heather Rodgers One of the biggest challenges is looking after the end-to-end relationship.
John Taylor World-class procurement is about making a significant and valued and measurable contribution towards your organisation’s performance.
Beverly Tew The key word for me is simplicity. The process should be so simple that people don’t mind going through it.
Michael Walsh Our goal as custodian of the supply base is to make sure it delivers advantage to the business, relative to the best competitors we have.
Ian Wilmot We need a business to be world class in how it procures from beginning to end. Procurement functions are potentially the ambassadors of change management to make that happen.It’s the way that process is executed by people that matters.
Rob Woodstock Listening to suppliers always provides insights and new ways of doing things. Quite often the suppliers have got more to offer than procurement is taking advantage of.
In summary, world class procurement is supported by management, staff, customers, and suppliers. It’s driven by people who use best-in-class processes that are enabled by technology. It manages change internally and throughout the end-to-end relationship of the supply base and thrives on simplicity. And it’s true on this side of the pond as well.
According to the article, this was the first of multiple debates scheduled to take place this year. As more hit the wire, I’ll do my best to keep up.
I read a great opinion piece in ELP by Sven-Anders Stegare (what a cool name too), CPO of SEB Group in Sweden. His comments are laced with common sense and you can almost see the battle scars earned from years in the procurement trenches.
He describes how the attention is focused on direct materials and key suppliers until one day, the white knight consultant hits the door with ideas for managing indirect spend and reducing suppliers. At that point, CPOs are confronted with various decisions to address these indirect problems which he generalizes in a very entertaining way.
Option 1 – The Big Bang: This is where you bring in an army of consultants steamroll everything in their way and pull down big savings numbers but all the procurement people ignore the results and none of the savings is implemented.
Option 2 – Old Fashioned Desk Strategy: Here the CPO writes in very tough and detailed procurement policies with threats of blacklists or worse. Executives love the hardliner approach but you will likely be run out of town before the plan ever hits its milestones.
Option 3 – The Big Knife: You lose all confidence that existing staff can perform so the entire group is outsourced to a 3rd party. Headcount is slashed and but the vendor has the same problems of talent management as you had originally and now they are keeping a percentage of the savings.
Option 4 – eTools: Implementation of eProcurement and eSourcing across the board gives a total S2P ecosystem…purchasing Utopia. Except, compliance is weak and the software tools are too complex with no plans for successful roll-outs and become shelfware.
Whats left? Is there no hope? There seem to be no bullets left in the chamber. However, I completely agree with Sven’s conclusions. The danger from these approaches is in trying to let just one of them solve all the problems. Having the right people in place, identifying and triaging the problems and addressing them systematically with a variety of strategies will result in the best and most long lasting success.
7. What about language issues? Americans generally only speak English.
For India, suppliers tend to have good written English skills. Spoken English can be difficult because of different accents and because of poor telecom connections. A US buyer unfamiliar with speaking with people from India will need perhaps 5 or 10 hours of experience speaking on the phone with people in India before finding it easy to communicate by phone.
For China, suppliers tend to have working written English skills. Email serves as a good medium for communication. Phone discussions are more difficult – Chinese suppliers may have poor English skills, and cultural issues may preclude a meaningful conversation (e.g. a Chinese supplier may say “yes” to mean “I hear you” rather than to mean “I agree”).
8. Are there common “red flags” we should know about before selecting a LCCS supplier?
A big one is if the supplier has a lack of experience providing material to the West.
9. When a company works with a 3rd party vendor to help identify, qualify and select a LCCS supplier, what range of deliverables should they expect?
The depth of service varies depending on the needs of the buyer. A buyer new to LCCS sourcing may want the 3rd party vendor to handle.
a) Getting information on suppliers through Requests for Information
b) Eliciting quotes
c) Conducting preliminary site visits
d) Hosting US buyers to visit finalist suppliers
e) Helping conduct final negotiations
f) Helping with design
g) Conducting first part approval
h) Conducting production run quality audits
i) Arranging transportation to the US
j) Arranging customs clearance
k) Arranging transportation from Port or Entry in the US to buyer site
10.What happens if something goes wrong? Can a 3rd party vendor help?
The 3rd party vendor can definitely help, especially if the buyer is new to LCCS sourcing. The 3rd party vendor can work with the supplier or the shipper to resolve production and delivery issues.
11. Are their commodities that should rarely be sourced via a LCCS supplier?
Commodities that are less frequently sourced are those that are expensive to ship because they cube out quickly or because they are very fragile, those that have short lead times, and those that are low volume and require frequent design modifications.
Today, we welcome Carl Greppin from Transpac Access. We took some time to ask Carl questions about Low Cost Country Sourcing to get details on some of the finer points of this process. Part II of this interview will be up tomorrow. There are widely varying opinions about LCCS and best practices, we welcome any additional comments on this topic.
1. There is still lots of buzz about low-cost country sourcing (LCCS).
• What should a company do to help decide whether to pursue LCCS strategies?
A company should thoroughly review everything it buys and determine which materials are best suited for LCCS.
Criteria include:
a) Savings – potential savings that could be attained
b) Experience – the experience that the LCC supply base has with providing similar materials to the West
c) Implementability – how easy it would be for the buyer to move materials to a new supply base
•Is it right for all companies?
Not necessarily. Some materials and services are better suited than others for LCCS. For some companies, such as those that provide services such as temporary labor in the United States, LCCS may not be a viable option.
2. Is LCCS only about using suppliers from other countries?
No – LCCS can also involve helping a company’s domestic suppliers use LCCS for their supply base.
3. I hear one needs to conduct in-depth due diligence on new LCCS suppliers. What does that entail?
Due diligence entails getting thorough information from suppliers on items such as English speaking and writing skills, experience with providing materials to the West, equipment, capacity utilization, other customers. Due diligence also entails conducting site visits to ensure provided information is correct, to inspect production and quality systems, and to determine if there is a workable chemistry between the buyers and the supplier.
4. What additional costs do I need to consider when determining whether to pursue a LCCS strategy?
There are a number of additional costs to consider. International transportation costs can be large, depending on the type of material being imported. Inventory carrying costs can be a factor since the buyer’s Inventory Days will become higher. There will be customs and brokerage costs. And there will be additional administrative costs, especially in the first year, as the buyer spends effort to learn how to operate with LCCS suppliers.
5. What are the “hot” low-cost regions now?
Right now, the “hot” low-cost regions are China for manufactured materials and India for services.
6. Are some regions easier to work with than others?
Chinese suppliers tend to be responsive and reliable. Chinese suppliers are also becoming adept at dealing with buyers from the States, so this is currently a region that is fairly easy to work with.
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