14/02/2019 08:42 | Share
In Part II we noted that there’s no single right answer or easy answer here as it’s very situational. And even though some consultants will always tell you to start with Sourcing and others with Procurement, they’re obviously not always right. Sometimes both are right, but usually neither are right. Because sometimes you start with Supplier Management. Other times you start with Contract Management.
But, in fact, absolutely speaking, neither are right. You start with analytics and strategic situational analysis based on analytics to figure out whether the problem is:
- you can’t do enough sourcing events
- your events are generating limited returns
- you can’t find the right suppliers
- you have to (quickly) ensure compliance with a newly introduced regulation
- your over-spend, and need for audit recovery, is too high
- your maverick spend is too high
- you need to get your services spend under control
- you are unsure of where your best opportunities lie
- your suppliers are under performing on quality and related metrics
- your deliveries are regularly late
- your (internal) customers are unable to get the information they need when they need it
- Finance is taking regular hissy fits about lack of timely cash flow insights
More specifically, you start with analytics on:
- (spend vs) contracts
- cashflow and discounts
- event throughput
- performance metrics
- inventory and logistics
Only then can you understand how the organization is performing and where it’s biggest problems lie. An analysis of spend might find that maverick spend is high, but the estimated overspend is at most 4%, but poor payment processes are actually costing the organization 4% interest (because it signed contracts with late payment penalties) as well as a 2% savings opportunity as a result of lost early payment discount opportunities (which it can afford as the majority of its customers pay on time). In this situation, while the organization might be tempted to get an e-Sourcing or catalog application to help reduce maverick spend, it should actually start with an I2P system to get invoices and payments under control. And so on.
Remembering that big bang implementation efforts always result in a very destructive big bang, do the analysis and start with the right platform application. Then, add one by one based on problem severity until you finally have a full end-to-end S2P platform implemented and utilized on a daily basis, which could be 18 to 36 months in the future, no matter how fast that SaaS vendor can flip the switch.
14/02/2019 08:42 | Share
Last year we brought up a very important point when managing supply. Specifically, we reminded you that sometimes supply comes from within the four (virtual) walls of your business — a fact that is often overlooked by man BoB (Best-of-Breed) S2P (Source-to-Pay) modules and even suites.
When we are talking about MRO, the goods and services you need might be in a storage room in another building. If we are talking about consumables, like what you might need for a new hire, everything you need might be one floor down, left behind by another hire who, after the probation period, didn’t work out. As a result, inventory and asset management are key to successful Supply Management, and to successful Procurement.
But Asset Management is more than just keeping track of assets, moving them from one location to another, and making sure employees choose existing assets in inventory before ordering new assets from suppliers.
Asset Management is not just tracking assets and deploying them when they are needed, it is making sure they are used when they are usable. Assets have a value, a value that almost always depreciates when they are not used. Add this to the extra cost of having them in inventory, and that’s a lot of wasted capital.
In other words, good asset management requires a platform that can
- track and improve forecasts … especially if demand or utilization timeframes start to shift
- optimally manage inventory levels … there should be enough to last to the next, optimal, restock window with a bit of buffer, but not so much that the excess inventory grows at every restock
- re-assign internal assets that should be utilized as fast as possible, and even allow for internal upgrades to delay unnecessary spending (e.g. the new machine bought for a new hire that didn’t work out after 3 months should be reassigned to an engineer 3 months away from a hardware upgrade)
- manage leasing of assets that are going to go unused for a while (e.g. the organization has an expensive piece of construction equipment that it will not use for the next three months — lease it out)
- identify when extra inventory or newly retired assets should be sold off to minimize loss
… or at least integrate with a platform that does.
Asset management is frequently overlooked, but very important to successful supply management.
14/02/2019 08:42 | Share
SI first tackled this subject back in 2014 in a 3-part series (Part I, Part II, and Part III) and then returned to the subject last year (Part I and Part II) since it seems that the core technology we are using hasn’t changed much in the last decade (as er the public defender’s lament over on Spend Matters UK) and many organizations are stuck on the Supply Chain Plateau.
That’s because driving technological advances is hard. Many among the older generation are still inherently distrustful of technology (and the doctor doesn’t blame them … self-driving Carl will drive them off the cliff someday) and 45% of the world’s population still hasn’t used the internet. But that’s not the biggest problem. The biggest problem is lack of …
Adoption. Why? If people don’t adopt platforms, they don’t use technology on a daily basis. If they don’t use the platforms regularly, they don’t push the platforms. If they don’t push the platforms, they don’t figure out what they need from the platforms. And then they don’t itch for an advance from the platforms, they won’t drive for an advance.
And, as we noted, when it comes to adoption, the key is to provide users with a platform that does everything they want, including things they never thought the platform to do, but makes it so easy to do that if you tried to take the platform away from them, they’d get mad and scream.
But, as we noted before, even if you have a great platform, this doesn’t mean it will be adopted … because the users who you need to adopt it might not even try it. Not only might they be from the older generation, but they might be from the older generation that has heard the same old story about how this new tool will make their lives easier a hundred times before, only to be let down. As a result, why would they want to be let down for the 101st time?
How do you get past that? We suggested a great UX, which is key because it has to be usable, but that only helps if you can get them to try the platform … in earnest … at least once. How do you get them to do that? Our answer last time was to convince them through messaging that hit home.
But what if the messaging only works for early adopters? What if the grizzled just get fizzled? Then what do you do?
It’s a tough question without an absolute answer. But the doctor now believes that the answer is to select a platform where you can do it for them!
As an easy example, let’s say they always complain about how long T&E expense claims take and lack of visibility. If you just acquired a new T&E management platform, chances are supervisors or processors have the ability to create claims for someone else, assign it to them, route it for approvals, and then simply sell the submitter (who still uses the old Excel form) a link to “track progress and status”. When they see how much easier the system makes their life, and see that they can create the claim in the system in an Excel like interface (if they choose, or the new wizard-driven way with OCR, but totally up to them) and get this progress and status insight even faster, they are more likely to adopt.
Similarly, if you want them to use a new sourcing platform even for simple bids, show them how much easier it is to keep track on supplier status and ability, use a template for th bid, and centralize communication. Send them links to pre-created supplier management portals and reports, event templates, and so on. Offer to be their “administrator” where you do the work but they have full visibility. If the platform really is easier to use and better, they’ll see how easy it is to just take control sometime and start using it. Don’t tell them how great it is, show them.
As long as you select a platform that allows multiple roles and delegation, this is easily doable and just might make the difference.
At least it’s worth a try!
14/01/2019 18:15 | Share
Last year we penned a post on how single tier risk mitigation strategies don’t mitigate risk and that they may, in fact, increase risk. As we indicated in our previous post, the following standard single-tier risk mitigation strategies have the potential to increase risk:
- Dual Sourcing
without careful planning, both suppliers could use the same Tier 2 source
- Alternate Design
can simply reduce / eliminate the need for one rare raw material in favour of another material that ends up being more rare
- Dual Sourcing
- Financial Risk Monitoring
for shakey suppliers isn’t enough to catch production shortcuts that a supplier might be taking to cut costs that increase your risk when the product is used or sold
- Replacement Product Lines
can share parts and suppliers that actually increase risk from a disruption
We indicated that if you wanted to truly mitigate risk, you have to go multi-tier and work with your supplier to identify the most likely risks in their, and your, supply chain and how to mitigate them.
And this is a great start, but simply using the least risky supplier at each tier doesn’t help you if a random natural or man-made disaster takes out a supplier for a few months (or permanently). There needs to be a dual sourcing strategy, and a well planned one. Using two suppliers in the same region or that use the same raw material source is not dual sourcing. Alternate design that is specific to a small supply base that could be wiped out with a single disaster or single market event is not sound alternate design. Financial risk monitoring using third parties that don’t have deep insight into certain markets, regions, or mining operations is not enough — by the time an issue is detected, it could be too late. And of course, trading one product line with known risks for another with unknown risks is pretty much the opposite of risk mitigation.
That’s why you not only need multi-tier risk mitigation in a single supply chain, but multiple supply chains with multi-tier risk for any critical products or product lines. As per our recent post on how the risk disconnect is still big, Sourcing and Procurement need to place a much bigger focus on risk to ensure negotiated scenarios are actual scenarios to realize the savings and value the organization expects.
08/01/2019 10:52 | Share
To save you time, the doctor has updated his short-list of the most important.
1. I WILL NOT READ PREDICTION ARTICLES
As the doctor has stated many, many, times, most predictions are old news or remanufactured shoes, as clearly explained in our long series on The Future of Procurement, where we tackled the same predictions you hear year after year after year and explained how some are, sadly, as old as commerce itself. Thus, there is no need to waste your time on them.
2. I WILL IMPLEMENT A BoB PLATFORM (FOUNDATION)
Last year we advised you to implement at least one new BoB Module or System, because, even if your organization is in the Hackett Group top 8%, the doctor can guarantee that there is at least one major Supply Management system or Source to Pay module you are missing (or lacking critical functionality in). In order to do a great job, you need a great system.
But, in addition to a great system, you need a great platform with a centralized data store and back office capability because the best system in the world is useless unless the right people are using it and everyone is working off of the same data and results with the access appropriate for them.
And very few organizations have a shared platform for S2C or P2P activities, and even less for P2P. And while the doctor encourages using BoB platforms as they can generate spectacular results when properly applied, those results need to be realized — which can’t happen unless the right employees can access the data in the applications they need to use. This means everything needs to be connected. This requires a platform.
Moreover, a platform with an open API, an open data store, and the ability to act as a master data store for all entities and transactions in the platform. Anything less is not a platform.
3. I WILL CONTINUE TO IMPROVE AT LEAST ONE TIME CONSUMING TACTICAL PROCESS PER QUARTER
There is absolutely no value in tactical work. This is where you hand over as much as you can to the machine that can do it faster, better, and cheaper than you. You can’t do millions of calculations and comparisons a second — it can. You can’t consolidate data from 20 different sources into a 20 page report in less than a minute — it can. Plus, as per the doctor‘s series on AI in Procurement (Today Part I, Part II; Tomorrow Part I, Part II, Part III; and The Day After Tomorrow) over on Spend Matters Pro and his upcoming series on AI in Sourcing over on Spend Matters Pro [membership required], now that assisted intelligence is widely available, and augmented intelligence is coming, there’s no excuse to do unnecessary tactical work.
Plus, as we clearly indicated last year, what you need to focus on is strategic work. Analyzing the top recommendations that come out of the Cognitive Procurement system to make sure they make sense, that the system didn’t miss anything, and that it works for your organization. And then figuring out if you have the experience and expertise to ignore a system market buy recommendation to go negotiate a better deal with top (incumbent) suppliers because your 20 years of insights gives you an edge that cannot be encoded. Or if the projected results from a market auction with the top 6 suppliers is better than your team would ever do with their complete lack of category experience. Your value is your ability to use your intelligence, not your ability to push paper. Let the dumb machines do that, and do what you were hired for!