Posts filed under 'Interviews'
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
March 27th, 2008
David Bush - Iasta
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.
Entry Filed under: General, Interviews
March 24th, 2008
Sean 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?
Entry Filed under: General, Interviews, Supply Management Best Practices
December 3rd, 2007
David Bush - Iasta
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.
Entry Filed under: General, Interviews, Supply Management Best Practices
November 19th, 2007
David Bush - Iasta
In this post I summarize the fifth installment of the CPO Agenda 2007 debate series - What are procurement’s key challenges in the next 1 years? that took place early this summer in Paris. [I think I’ll crack a bottle of Cabernet Franc in honor of our European clients.] My summaries of the previous debates on World Class Procurement - The British Perspective, The Next Wave of Savings, Global Sourcing - A Scandanavian View, and What Capabilities Do You Need To Operate In A Global Market? are still available in the archives.
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.
Entry Filed under: General, Interviews
October 9th, 2007
David Bush - Iasta
In this post I summarize the fourth installment of the CPO Agenda debate series - What Capabilities Do You Need To Operate In A Global Market? that took place in Milan in the Spring. My summaries of the previous debates on World Class Procurement - The British Perspective, Global Sourcing - A Scandanavian View, and The Next Wave of Savings are still archived here on eSourcing Forum.
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!
Entry Filed under: General, Global Supply Issues/Risk, Interviews, Supply Management Best Practices, Technology
July 18th, 2007
David Bush - Iasta
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.
Entry Filed under: General, Interviews, Supply Management Best Practices
June 19th, 2007
David Bush - Iasta
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.
Entry Filed under: General, Interviews, Supply Management Best Practices, Technology
April 13th, 2007
David Bush - Iasta
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.
Thanks for your thoughts, Carl!
Entry Filed under: General, Global Supply Issues/Risk, Interviews, Suppliers
April 12th, 2007
David Bush - Iasta
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.
Entry Filed under: General, Global Supply Issues/Risk, Interviews, Suppliers
March 22nd, 2007
David Bush - Iasta
Recently Purchasing ran an article which, after noting that strategic sourcing is at the heart of the purchasing function, also noted that analyzing the supplier market, identifying potential suppliers to work with, deciding how you’ll work with them, planning your negotiations strategy, integrating suppliers into your business and monitoring their performance are absolutely critical for successful purchasing and supply chain management.
In this article, they discussed five tips inspired by conversations with top practitioners. These tips were:
- Dive Deeper
- Build a Team Approach
- Quiz Your Peers
- Hold Regular Meetings
- Check the Records
Dive Deeper
According to Deb Lynch, director of sourcing and supply management at Toro Co., the four-quadrant supplier categorization process (leverage, strategic, transactional, and bottleneck) is the best basis for a future sourcing activity.
Build a Team Approach
Jeff Bruett, the automotive division purchasing manager of FCI has learned that the law of supply and demand ultimately determines market costs and prices, and your buying team can’t be a 900-lb gorilla dictating terms and conditions to the supply base. You need to work with your suppliers to get their best efforts, not just their best prices.
Quiz Your Peers
Whether positive or negative, word of mouth really helps in analyzing the supply market according to former category manager at HallMark Inc.. It isn’t difficult to find information on the markets, it’s harder to find good suppliers.
Hold Regular Meetings
The Vice President of Supply Chain Strategy and Planning at Celestica, Harvinder Sembhi, holds regular meetings with its key suppliers every three months to discuss a variety of issues, including pricing trends and supply conditions.
Check the Records
Roy Calderon, the Latin America sourcing manager for H.B. Fuller spends a large part of his day trying to understand the competitive situation and employs a variety of strategies to find out what suppliers are paying for their raw materials to anticipate incoming price changes. In some countries, import records, the most important records, are public information and the best place to start in your quest for pricing information.
Entry Filed under: General, Interviews, Supply Management Best Practices
March 7th, 2007
Agatha Degasperi - Iasta Europe
Q11: What were the key benefits of having implemented an e-sourcing solution and what would you say were the main lessons learned?
A11: The initial key benefits achieved were:
• The creation of a competitive environment for tendering all indirect expense contracts.
• Simplification and standardization of the tender process.
• Ability to track compliance to the Procurement Policy.
• Provide buyers with tools to make better business decisions.
On a more long term basis, by having created a knowledge center for all indirect expense contracts we started to use the tool for forecasting and budgeting expenses.
The main lessons learned were:
• Ensure you have a dedicated resource available during the implementation and first 6-12 months to train/support all users and ensure maximum benefits of the e-sourcing tool are achieved.
• Conduct frequent meetings with all users to share experiences/ideas.
• Obtain buy-in from senior management.
• Monitor the e-sourcing process and award decisions to ensure ethical behavior is applied.
Q12: Any advice to companies thinking of/or currently implementing e-sourcing?
A12:
- Obtain buy-in from Senior Management (invite them to an auction) and make sure everyone is convinced of the benefits of e-souring vs. traditional sourcing.
- Finance should take the lead in the implementation of e-sourcing (when there is no Procurement department). They have the information (actual expenses/ budgets/reporting etc.) and should be the key-driver.
- Create a Procurement Policy to encourage maximum use of the e-sourcing tool.
- Assign a dedicated resource (internal if you have one, otherwise consider looking externally) to train/coach buyers and ensure compliance with company policy.
- Support buyers not only with Training on the technology but also with guidelines on how to properly interact with suppliers and make sure they take advantage of all the tools in the system.
Entry Filed under: General, Interviews, Supply Management Best Practices, Technology
March 6th, 2007
Agatha Degasperi - Iasta Europe
Q7: We had a few postings last year on e-sourcing Ethics/Market Integrity. I know that through some of the consulting support your organization received in the early stages of implementation, this was one of the key topics addressed. Can you comment on a few of the successes and failures when it came to ethics?
A7: During the first auctions it became apparent that buyers where not necessarily inviting suppliers to whom they where prepared to award the business too. Their motivation was to increase competition and obtain price reductions vs. their incumbent without changing suppliers. Some comments were:
“I am only inviting this supplier because I want to increase competition”
“I will not change supplier because my incumbent knows exactly what I want/need”
“Only my incumbent can completely satisfy my requirements”
In some cases, these arguments were made because of the long trading relationship with the incumbent, in others it was a lack of knowledge of the marketplace.
Q8: What were some of the most challenging behavior you remember dealing with?
A8: On the buyers front it was the skeptical attitude of buyers who have been dealing with their incumbent for years and the conviction that they already had the most competitive pricing and the best supplier. When probing them on when was the last time they tendered a contract, challenged their supplier, leveraged spend and/or looked at new solutions in the marketplace, most of the time the answer was years ago…….
On the supplier side it was mostly convincing suppliers to participate in the auction, especially when they had had negative experiences in the past. When explaining that the purpose of e-sourcing is to streamline the tender process for buyers and suppliers, ensure an equal playing field for all participants and have one central point of communication, most suppliers decided to participate.
Q9: How did you ensure an ethical e-sourcing process was applied across the organization?
A9: There were 3 main initiatives taken:
1) During our weekly meetings with all buyers in the organization we frequently discussed ethics. The key message during these meetings was that we should only invite suppliers to whom we are truly willing to award the business too.
2) We revised the Procurement Policy to force all contracts above a certain limit to be tendered through e-souring and ensure suppliers understand that non-participation automatically excludes them from the tender process.
3) Training: this was to look at ways to level the playing field for all suppliers when there are product/service differences, supplier communication best practices, and supplier selection/qualification.
Q10: It’s not fair to put all the heat on the buyers, it’s important to ensure suppliers behave ethically as well. Did you face any issues in this area and if so, how was it handled?
A10: We had instances where suppliers tried to bypass the e-sourcing tool and communicate directly with the buyer. Often this was the incumbent supplier trying to retain the business without having to participate in an auction.
We solved this by reiterating to buyers that all communication should be done through the e-sourcing tool and suppliers need to understand that they will only be considered when participating through the online process. Award decisions had to be approved by the Procurement Manager to ensure policies and procedures were followed. Support from Management in this case is crucial.
Entry Filed under: General, Interviews, Supply Management Best Practices, Technology
March 5th, 2007
Agatha Degasperi - Iasta Europe
I recently sat down with a former Financial Controller of a Global Retailer to look back at his experience of implementing an e-Sourcing solution in Europe. This is the first in a 3 part interview.
Q1: How/Why was the decision made to use e-Sourcing?
A1: The initial decision to look at e-sourcing was made by Corporate. Reason for implementation in Europe was the creation of a competitive environment to tender all contracts related to indirect expenses. Focus on expense control should be a key performance indicator for any company, especially when operating in a very competitive environment (i.e. retail). It will free-up/save capital to invest in the long-term success of the Company.
In addition to the competitive environment, it also allows a Company to ensure compliance to the Procurement Policy, tracking of contracts and streamline the tender process across all departments.
Q2: What was the process for selecting and deciding to use an e-sourcing provider in Europe?
A2: Initially one specific e-sourcing provider was considered to be the world-wide provider for our organization. We concluded that their system was not user-friendly and flexible enough to meet our business needs. Eventually we decided to go with another solution because not only was the tool easy to use, but it also provided the flexibility and tools needed for easy implementation within the existing processes. With the e-RFx tools it forces buyers to think about business requirements and ensure proper products/ services are purchased to run a successful and efficient business.
Q3: How was the tool implemented?
A3: After the decision was made to implement the tool, a training session was conducted for all European buyers of indirect expenses. The message there was that this tool will provide them with an easy platform to competitively tender contracts and ensure the best possible pricing is obtained for the Company.
When the first auction was set-up we invited the European Management Team to showcase the tool and discuss the potential benefits to the organization. The first auction immediately resulted in a 20%+ year-over-year saving, which helped get buy-in from all key players within the organization.
Q4: What was the key to making this implementation successful?
A4: The key to a successful implementation can be split in 3 steps:
1) Select the technology that best meets your business needs. This is important for any technological implementation/enhancement and e-souring is no different. The tool should be flexible enough to tender all your contracts without being too complicated and/or time consuming for the user.
2) Ensure buyers are not only comfortable with how to use the system (i.e. Training) but also assist them whenever needed (with analysis, search for suppliers etc.) Schedule regular cross-departmental meetings to discuss lessons learned and frequently monitor their activities in the system. Never assume buyers know what they are buying and how they should buy it, challenge them and provide alternatives.
3) Obtain buy-in from Senior Management!
Q5: What didn’t work as well?
A5: Make sure buyers understand the importance of frequent communication with the suppliers during an auction (this doesn’t change vs. a traditional tender) and ensure suppliers understand the process. This will prevent surprises during or after a completed auction and is critical for the success of future auctions. Unpleasant experiences will prevent suppliers from participating a 2nd time!
Entry Filed under: General, Interviews, Supply Management Best Practices, Technology
February 26th, 2007
David Bush - Iasta
This is the second installment of our interview with Andrew Bartolini from Aberdeen. He takes some time to answer detailed questions about the supply management marketplace, adoption/traction and future. Thanks to Andrew for spending time to participate.
1. The Benchmark report indicates that many companies still do not use e-Sourcing strategies. From our anecdotal experience, many are averse to auctions and don’t want to use them for fear of encouraging their own customers to use them. How do you respond to these companies?
In spite of a clear and proven value proposition, certain enterprises have resisted utilizing eSourcing as a standard business process. I think part of this is due to the hangover from the early “reverse auction” days where a lack of acceptable business practices and technologies with severe limitations enabled buyers to use these tools as a battering ram to beat down their suppliers. When I was at Commerce One, we spent a great deal of time and energy educating procurement organizations on best practices (level playing field, apples-to-apples bidding, etc.) sometimes to no avail. While most played fairly, abuses occurred and left a bad taste in the mouth of many a supplier. It is why for many years “auction” was a four-letter word in this industry.
But we’ve come a long way, acceptable (read: clear and fair) eSourcing business practices are widely understood and employed and best of all, today’s eSourcing technology is really robust. The functionality has really progressed in the past 6-7 years.
For those companies that have resisted eSourcing, the sad fact is that they are at a competitive disadvantage to their competitors. Don’t want to conduct an auction? Fine, but you can use eSourcing for “sealed bid” events and leverage technology to streamline processes and perform superior bid analysis.
From a supplier perspective there are many benefits to participation including .
• Shorter sales cycle with an automated the RFQ process
• Access to new markets & new customers
• Lower barriers to entry
• Greater competitive information
• Clearer insight into market pricing (New and timely information on state of the market)
• Ability to leverage excess/idle capacity
As I write that last section, I feel like I’ve gone back in time to circa 2000…..
2. The Benchmark report indicated that there is a trend of lower identified savings via standard e-Sourcing strategies. Does this mean that companies just starting to initiate e-Sourcing should worry about reduced savings?
I believe that the trend towards lower savings is indicative of a case of diminishing returns found in the second and third eSourcing cycles of certain commodities. Let’s be clear, used properly eSourcing can enable superior price discovery and enhanced savings (compared to legacy offline processes) by offering a more competitive bid process, it does not change true market pricing. Suppliers participating in eSourcing events may sharpen their pencils, but they rarely check their cost structures at the door.
3. Many sourcing teams primarily run simple, e-Sourcing projects. Can bid optimization (decision analysis) technology help them?
Because it is an under-utilized strategy, I think it first makes sense to offer a definition - Bid optimization uses advanced analytical tools to simultaneously negotiate and evaluate complex bid structures against a wide range of interdependent sourcing objectives, variables, constraints, and scenarios. In plain English (and as it relates to eSourcing) – bid optimization enables buying organizations to evaluate often complex bid information against a set of criteria to make the best award decision. At some level you can employ bid optimization with less complex eSourcing events with few data points, however, the real benefit to enterprises is the ability to conduct complex eSourcing events with multiple bid inputs to make your decision. For those readers with a financial background, the modeling capabilities of bid optimization engines today match and in some cases, exceed what can be done in Excel. The ability to incorporate a much broader set of evaluative criteria means that you can use eSourcing for a much greater number of categories
4. Of all the e-sourcing techniques you covered in your report (a) which techniques seemed to be the most common and (b) which technique(s) are not and (c) which seem to deliver the most significant improvement after introduction.
a. We are certainly seeing greater usage of non-price factors in utilized in award decisions and a higher number of events focused on total landed cost. Scoring (Team or Automatic) which may be used in events that I described in the previous sentence is widely used. I personally do not consider it an advanced strategy but the use of multi-stage events is becoming more commonplace.
b. Commodity hedging and NPV or other financial modeling are rarely used; supplier alternative bidding also has limited traction.
c. Our research shows that bid optimization, matrix or tiered pricing, and scoring deliver significant improvement. Our research also shows that most enterprises use these strategies rarely, if at all.
5. Bid optimization technology seems too complex for the average Sourcing Professional to use. Is this true? Does one need a PhD to effectively use bid optimization technology? Do you think advanced sourcing optimization is being used well yet? Is it still ahead of the curve for most companies?
Our latest report shows that bid optimization is successful when employed but very under-utilized.
As my predecessor once noted, ‘these are not your father’s eSourcing applications.’ The capabilities within many eSourcing applications are quite astounding. This means however that there are many moving parts that may appear complex to an occasional user. For a power user or someone who is well-trained, the applications are generally intuitive and very buyer-friendly.
Best in class enterprises have passed the adoption challenge and can now focus on optimizing their processes and on using advanced strategies.
However, most enterprises are still smack-dab in the middle of the adoption cycle (and it has been a long one) and lack the internal expertise to utilize bid optimization.
It is my view the time is now to start using bid optimization and other advanced sourcing strategies more aggressively. Best in class enterprises have the capabilities to do so and are doing so….. For the average enterprise, leveraging external expertise is a great way to start, I also highly recommend centralizing your eSourcing capabilities to work your way up the learning curve as quickly as possible.
David – Thanks for another opportunity to discuss The Advanced Sourcing & Negotiation Benchmark.
Happy blogging,
Andrew
Entry Filed under: Analysts/Research, General, Interviews, Optimization, Reverse Auctions, Supply Management Best Practices
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