Procurement


Supply Market Intelligence … Harder than it Looks … But Possible with Modern Systems, Part II

14/02/2019 08:42 | Share

See Part I for the story to date. Suffice to say that when the following are objectively analyzed, one can expect good market insights:

  • financial statements, particularly those from public companies (as false statements are a criminal offence for the CFO and CEO in some countries)
  • customer interviews, good or bad, as it’s a third party product/service view
  • performance reporting, as any hard metric is objective
  • internal stakeholder interviews, where the bias is minimized through targeted questions
  • price index data, that can be used to roll-your-own forecasts
  • public consumption data from government contracts, as they are great benchmarks

… provided one has the right platforms!

What are those platforms? Well, consider that the following sources are (primarily) numeric:

  • price index data
  • performance metrics
  • public price contracts

And the following sources are primarily (subjective) textual:

  • customer interviews
  • stakeholder interviews

And the following, final source is mixed:

  • financial statements

And that makes it pretty clear you need a platform that has the following if you want to process the price data:

  • A Great Open API
    as the price index data will be on multiple exchanges — which use different APIs, security protocols, currencies, and even data encoding formats and you will need to be able to easily retrieve and integrate all of it
  • Multi-Level Formula Based Cost Models
    to accurately capture and represent all of the commodity, component, product, and service costs that you need to track for cost estimation and analysis, bill of materials, sourcing, etc.
  • Powerful Analytics (Integration)
    you need to be able to store, analyze over time, and use multiple, multi-variate, statistical algorithms to detect trends and project them over time, as well as alter the assumptions, parameters, and model inflection points (due to predicted inflection events)

… and a platform that supports the following if you want to process the textual data:

  • advanced semantic processing
    that can extract key topics and opinions and classify them to process or technology, functional area, etc. (as well as identify incongruities)
  • advanced textual analytics
    the platform needs to be able to assign general descriptions numeric weights against important factors (perceived risk, customer service level, etc.) to determine if the general view is improving, weakening, or staying static
  • advanced sentiment analysis
    that can extract not only general opinions about a supplier, process, etc. but specific opinions about process, technology, etc. components — for example, the stakeholder might be soured on the relationship with a supplier because they have p!ss-p00r customer service but agree they make the highest quality parts (and would be usable if they ever bothered to answer the [email protected] phone); just an overall negative sentiment of 0.6 is not that meaningful

… and to process financial statements, the platform needs to merge the advanced textual analytics to populate a standard financial model template, adding in any additional revenue or expense, asset or liability, etc. lines that are missing from the standard model so the books balance and can be analyzed.

So where do you find these capabilities today?

Well, as previously indicated, you will find:

  • advanced cost models in direct sourcing platforms that support full multi-level bill of materials
  • advanced forecasting in modern analytics platforms that support machine learning
  • advanced sourcing support given predictive costs in platforms that support strategic sourcing decision optimization
  • advanced document analysis in industry leading contract management solutions (which can be adapted to parse and analyze and break apart and score any document type given a template and samples)

In other words, modern Analytics, Optimization, and Contract Analytics solutions. And this is just another reason SI has been preaching advanced optimization and analytics since day 1.

Supply Market Intelligence … Harder than it Looks … But Possible with Modern Systems, Part I

14/02/2019 08:42 | Share

Last year, about this time, we wrote a piece on Supply Market Intelligence and how it was Harder Than it Looks because there are a number of sources that might yield intelligence, including:

  • Suppliers,
  • Internal Sources, such as
    • internal stakeholders
    • performance reports
    • SRM programs
  • External Sources, such as
    • news feeds and alerts
    • price index forecasts
    • blogs and social media
    • peer companies
    • research services
    • advisory programs

… but not all are equal. And not all are fully accurate. For example:

  • Supplier company websites only show you what the supplier wants you to see, which is typically not the full picture, and maybe not even a true part of it
  • Internal Sources, such as
    • internal stakeholder interviews capture bias as well as expertise
    • performance reporting can only report on hard metrics the organization had the foresight to capture
    • SRM programs — and the insights yielded — vary by company and supplier
  • External Sources, such as
    • news feeds only cover the stories that interest the journalists
    • price index forecasts use in-house algorithms that are not disclosed that may not be accurate
    • blogs and social media cover the stories that can be sussed out by the bloggers and analysts

But some of them contain valuable data that when appropriately, and objectively analyzed, can yield good insights, as per our follow up post:

  • financial statements, particularly those from public companies (as false statements are a criminal offence for the CFO and CEO in some countries)
  • customer interviews, good or bad, as it’s a third party product/service view
  • performance reporting, as any hard metric is objective
  • internal stakeholder interviews, where the bias is minimized through targeted questions
  • price index data, that can be used to roll-your-own forecasts
  • public consumption data from government contracts, as they are great benchmarks

… and so on. But it can be pretty hard to make sense of all this … unless you have the right platform with the right capabilities. Now, it might not be a single platform from a single vendor and instead be a base Sourcing / Procurement platform augmented with multiple best of breed modules and API services from multiple vendors, and that’s fine. The point is that it’s possible to make sense of this with modern technology. What technology? How? That’s the subject of our next post.

How Do You Identify A Truly Stellar Supplier? Part III

14/02/2019 08:42 | Share

Assuming one exists …

Five years ago we first asked this question and a few answers we gave was a stellar supplier was a supplier that

  • actively self manages
  • measures, tracks, and even reports its own performance against SLAs and KPIs
  • accepts — and even helps to identify — the corrective actions it needs to take
  • actively works to not only meet expectations but exceed them
  • communicates as soon as something happens that could threaten a KPI, SLA, commitment, or expectation.

And if multiple suppliers met these requirements, you wanted one that is willing to

  • collaborate
  • jointly identify opportunities for efficiency improvements and cost reductions

But then last year we noted that we missed something important. Most importantly, none of this mattered unless the supplier was willing to

  • open its books
  • expose its supply chain and jointly identify tier 2 risks

But this is not everything that makes a stellar supplier. While its critical that any strategic supplier open its books and expose the risks that affect you, one more thing is critical.

  • platform adoption

If you’re using modern S2P platforms, they all rely on data to deliver their value. And a lot of the data they require is supplier (-related) data that needs to come from the supplier. And since there is no way you can enter all of the data you need from all the suppliers, you need them to use the portal you provide them. You need them to adopt your platform. If they won’t, they are not the stellar supplier you need.

Why Are CFOs and CPOs Still Delusional When it Comes to Analytics?

14/02/2019 08:42 | Share

the doctor was recently asked if an organization needs a dedicated Sourcing Spend Analytics solution if the organization already has a generic BI tool that sits on top of its ERP or data warehouse. Well, while the answer is No in theory, it’s rarely No in practice. This is because even if the generic platform you have can support (sourcing) spend analysis, chances are it hasn’t been set up for that. And it will need to be (heavily) customized.

So you either need to get a consultancy and do a lot of specialization, or buy a dedicated solution that is ready out of the box — and, preferably, if possible, buy one that is built on top of your BI platform if you bought one (like Tableau or Qlik) that is best in class.

As we noted in our piece last year that asked why do we still have first generation ERP/Data Warehouse BI, most arguments for generic BI have more holes than swiss cheese. As the Spend Master noted himself ten years ago in his classic, but still under-read, piece on screwing up the screw-ups in BI:

  • central databases, like the kind favoured by most BI tools, don’t solve the analysis problem
  • business analysts should be able to construct BI datasets on their own
  • a governance and stewardship program, which is likely the reason for the generic BI platform acquisition, doesn’t actually put any meat on the table
  • cleansing is often the problem, not basic analysis & reporting
  • BI systems are difficult to use and set up, it is difficult to create ad hoc reports, and it is impossible to change the dataset organization … all the stuff that makes spend analysis, you know, valuable

Plus,

  • BI reports are pretty generic, and not fine tuned to Sourcing, Procurement, or Finance
  • BI engines work on one schema — the ERP schema … which is rarely suited to spend analysis
  • BI engines expect all of the data to come from the ERP. SA systems don’t.
  • The ability of first (and even second generation) BI engines to create arbitrary reports is considerably overstated.

Hopefully someday soon CPOs and CFOs alike will get the point that if you want to do proper Sourcing and Procurement Spend Analysis, you need a proper Sourcing and Procurement Spend Analysis Solution.

There is No Bright Side to a US-China Trade War

14/02/2019 08:42 | Share

I’ve read a few pieces over the last couple of weeks that some Asian nations expect that a drawn out reciprocal trade war between the U.S. and China could have a bright side for them as they expect that they can lure more manufacturing or agricultural exports their way.

Sounds good in theory, but here are the problems with that theory.

1. A lot of outsourced production over the last two decades has become highly specialized to the point where very few nations have factories with production lines that can produce the goods.

2. The modern electronics industry relies on rare earth metals, and China is the majority producer for many of these — in fact, only a few nations on the planet produce some of these rare earth metals.

3. The only nation that can rival China in agricultural production in Asia is India.

4. A number of companies that need supply assurance have locked in contracts with Chinese (multi-)nationals that can’t be easily broken without penalties.

5. International trade requires logistics infrastructure — good roads, reliable trucking, modern ports, large cargo carriers, etc. Something that not many countries in Asia outside China and India (and to some extent Japan and South Korea) have a lot of.

In other words, there’s not a lot of outsourced production that can be easily switched to other Asian countries, and, most importantly, if China becomes unattractive to the U.S., which we must remember controls about one quarter of global GDP, then

6. Central and South American sources can be just as attractive, and can be easier to source logistically.

Trade wars are never good, and there is no bright side, especially in this trade war.

Load more

}