Posts Tagged ‘eProcurement’

Strategic Sourcing, what is it all about?

December 17, 2013

Strategic sourcing processes introduced in the mid-nineties have proven to be so robust that even today they remain broadly similar.

This quick overview is not an absolute step-by-step template, because each organisation is unique and each deployment, although broadly similar, will be unique. It is not designed as a one-size-fits-all approach as this will not align your sourcing strategies with what your organisation wants to achieve. One thing that has been learnt from multiple deployments is that successful organisations drive deployment of strategic sourcing in their own way. 

Definitions

stra·te·gic [struh-tee-jik] – adjective

1. Helping to achieve a plan, for example in business or politics;

2. Pertaining to, characterised by, or of the nature of strategy: strategic movements;

3. Of an action, as a military operation or a move in a game, forming an integral part of a stratagem: a strategic move in a game of chess.

sourc·ing [sawr-sing, sohr-] – noun

1. Buying of components of a product or service delivery from a supplier.

Strategic sourcing is an integral part of a wider business strategy to improve profitability and, in turn, shareholder value. It is directly linked and specific to the business, and illustrates opportunities within the supply base to either reduce cost or increase the value of products or services required by the business. Typically, it includes demand management and supplier management. However, increasingly it is becoming important to factor in total cost of ownership (TCO) and sustainability. 

Demand management

Understanding the specification and volume requirements from the business ensures that needs can be appropriately met and that resources are not being wasted. Demand management is not about reducing contract volumes. Rather, it is about ensuring that contract volumes are appropriate for meeting the needs and objectives of the organisation. A core process that will contribute to the strategic sourcing plan is the sales and operations planning process (S&OP).

The S&OP is an integrated business management process through which the business continually achieves alignment and synchronisation between all functions of the organisation. It generally includes:

• an updated sales plan;

• a production or delivery plan;

• inventory holdings;

• customer lead times and commitments;

• a new product development plan;

• a strategic initiative plan;

• a financial plan.

The strategic sourcing team would ultimately be involved in several of these areas, to contribute towards capacity planning and to understand how each feeds into the overall plan and influences demand profiles.

Supplier Management

Understanding the capability, costs and capacity within the supply base ensures that business requirements can be appropriately matched without incurring higher costs. Systematic improvements in supplier management not only improve cost of goods and services but can also improve relationships with suppliers. This can lead to supplier relationship management (SRM) – tools and processes that enable the proactive management of an ongoing business relationship to secure a competitive advantage for your organisation.

To deploy SRM, an organisation needs to decide on a segmentation approach that considers the internal needs of the business, spend, and also accounts for risk to the business. Broadly speaking there are four high-level categories of suppliers.

Transactional suppliers are where little or no relationship or performance management activity is undertaken. Either the suppliers are utilised infrequently or the supplier is of low value to the business. These suppliers can be easily switched for another if required.

Performance-managed suppliers focus on ensuring delivery of the contracted goods and services to the required cost and service levels, rather than on building a collaborative long-term relationship.

Relationship-managed suppliers have some strategic value, so elements of SRM needs to be applied here.

Strategic suppliers are typically either business critical suppliers, or high spend suppliers. Generally the most effort is expended on this category to drive a mutually beneficial collaborative relationship. This is an effective route to improving costs through the Value Add or Value Engineering (VA/VE) process. A close working relationship with strategic suppliers also leads to a greater understanding (and reduction) of the TCO of products or services. 

Total Cost of Ownership

Understanding TCO is becoming increasingly important to procurement. Legislation concerning the environment is affecting the way we do business either through EU directives such as the Waste Electrical and Electronic Equipment (WEEE) Regulations or through corporate social responsibility programmes that drive different behaviours from the business. It is important to factor in not just the acquisition costs but also the cost of doing business with the supply base and any return flows or on-cost from recycling. 

Sustainability

The fourth element of strategic sourcing also provides part of the rationale for driving it within the organisation. Being able to sustain the supply of goods and services while de-risking the supply chain as well as balance the total costs is ultimately the responsibility of procurement.

A coherent approach

Tying all activities together into a coherent plan will transform the business, as only the procurement team can do. Internal ‘silos’ are built as a company grows. Although each silo represents the company’s acquisition of knowledge and improves the ability to deliver value to the customer, they can also create inefficiencies in the business, leading to organisational inertia. This can slow the pace of change and reduce the capability for innovation. Creating a plan balanced across the four areas ensures you will engage with the business and supply base.

When creating a communications plan, consider each of the four areas and how they might affect the stakeholder. Simple, bite-sized statements work well for those in more senior levels of the organisation. However, greater detail will be needed for others, especially where they perceive they might have to change what they do. Build in the wider plan, so each stakeholder can see all issues and organisational levels have been considered.

Develop your plan and highlight the best solutions for each area of the business. Consider using a SWOT analysis (see below) to develop the ideal outcomes.

 

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Collaboration in SCM

January 16, 2013

Over the years, many technologies have evolved to support both asynchronous and real-time collaboration. Most of the older technologies, such as teleconferencing, video conferencing, e-mail, etc., have major limitations that lower their value in product development environments. The newer and still-evolving technologies that enable PLM allow the management of product information and the processes that are used to create, configure, and use the information in a manner never previously thought of before.
We talk a lot about collaboration, but do we really understand what it means? In general, collaboration is an iterative process where multiple people work together toward a common goal. Methods of working collaboratively have existed as long as humans have joined together to accomplish tasks that could be done better by a team than an individual. Early man is probably the best example of collaboration when hunting for food for the village or the tribe.

There are two modes of collaboration: synchronous and asynchronous. Users working in an asynchronous manner carry out their assigned tasks and then forward the data to the next person. This way of working is serial in nature and only allows users to participate one at a time. Communication among collaborators is normally carried out using telephone or e-mail. Effective collaboration requires an area of storage for information from which product definition data can be shared with all those that require it. This shared area is commonly referred to as a data vault. Flow control and task execution is performed in an asynchronous way using workflow and project management tools. These tools allow data to be routed to users and progress to be monitored.

Synchronous or real-time collaboration enables users to view, work with 2D (e.g., specifications, drawings, documents, etc.) and 3D data (e.g., mechanical CAD models), and carry out interactive communications with each other in real-time. In addition, PLM-enabled collaborative solutions often support the ability to view, rotate, add notes and annotation pointers, and some also offer functionality to change the 3D design model data. This provides the same communication effectiveness as having all participants in the same room, at the same time, looking at the same data.
The following describes some of the processes commonly supported by PLM-enabled collaborative technologies.

Supply Chain Management—The move to a partnership-oriented supply chain means that suppliers, partners, sub-contractors, and customers are all involved in product definition. For companies to embrace the true potential of the distributed supply chain, collaborative tools can be used to manage data and processes across a distributed environment.

Sales and Bidding—Opportunities exist for sales, engineering, purchasing, and manufacturing to engage in collaborative sessions where product options, alternatives, and concepts are reviewed by each discipline at the same time. This is faster, more efficient, and can produce more accurate and cost-effective bids.

Maintenance and Support—The application of collaborative tools in maintenance and support activities is gaining acceptance in a number of different sectors such as aerospace and defense, automotive, process, and machine tools. For example, animation and simulation tools are being used to demonstrate how products are operated and maintained.

Change Management and Design Review—Adopting a different design review process, where project teams join a shared collaborative review session can result in significant benefits as potential conflicts and errors can be identified early in the product development lifecycle.

Senior Managers in the business world understand economic cycles are a known fact of life. The key to success is the way managers and organizations adapt to these cycles. Since they are a fact of life, we know that we can’t just ignore downturns and hope for a better day. So instead, those that are successful learn how to become more efficient while still ensuring that they deliver the best value to the markets they serve (i.e., making available the right product, at the right price, to the right market, at the right time, at the right quality, (The 5 Rights!)).

Adoption of sourcing technology – ease of use.

January 3, 2013

Organisations spend millions of dollars on technology implementations. It has been seen that many projects fail within one year of implementation. In a recently issued study report from the World Economic Forum 2010-2011, Sweden and Singapore continue to dominate the rankings, whereas Malaysia ranks 28th and Oman stands only 41st in terms of technological savvy nations. One of the reasons for this could be lack of adoption of new technologies within the organisation.

Employees using a new software system exhibit steep learning curves and resistance to change which is evident from the large percentage of organisations feeling their ability to deal with change being poor. Most of the time this failure can be attributed to a lack of communication between the decision maker (which in our case, would be the CPO or the VP procurement) and the end user(buying manager, buyers etc.). The point being, that such an environment is not conducive for effective software implementation.

Procurement technology solutions have also not been immune to adoption failure. Let’s take a look at a case study.

An $11 billion organisation had in place an existing eSourcing solution from a major solution provider. The investment for the same was close to $ 100,000 and there were 100 user licences which had been purchased. After a Post implementation review it was observed that there existed only 5 active users of the application whilst 95% remained inactive indicating lack of adoption amongst the users. More importantly, what was not considered was the comfort level of the suppliers who would be an important end user of the sourcing solution. Suppliers would not respond to RFIs created within the tool citing it to be too complex and would send in quotes through excel documents making evaluation almost impossible and tedious.

This post will explore the major challenges involved in adoption and how an organisation can use four strategies to overcome the adoption challenges and ensure acceptance of the eSourcing solution by the end users.

Challenges Faced!

Before I discuss the ways to increase procurement technology adoption within organisations, let us look into what are the major challenges that organisations face with respect to procurement technology adoption.

The first and foremost challenge is to deal with the resistance to change. Even when organisational members recognise that a specific change would be beneficial, they often fall prey to the gap between knowing something and actually doing it.

The second reason can be attributed to the complexity of technology which detracts the end user since it requires acquiring new technological knowledge and skills. Complex features may sound great in product demonstrations and data sheets but become a bane to adoption at the ground level.

The third reason could be a lack of visibility into benefits of the software post implementation. It’s important to note here that a benefit needs to be expressed in the parlance of the end user. The end user needs to see how the technology will benefit him in his job. In short what is the take away for him?

So how does one overcome these challenges? Here I would like to draw your attention to what I want to call the “For Ease Strategies” of efficient user adoption. These are – Ease of Use, ease of user Involvement during evaluation, ease of Training and Adoption and finally ease of Metrics & Incentives. Let us look into each of these “ease strategies” and the role they play in overcoming the challenges.

Overcoming challenges to procurement technology adoption is the key to ensure that an organisation reaps the benefits from their implementation. In this section I will discuss the importance of having the right strategy to overcome the adoption challenges.

Strategy 1. Ease of Use

As discussed earlier, complexity of technology was one of the major reasons for lack of adoption. This is where having a technology which is easy to use goes a long way in fostering acceptance among the end users. Let’s consider a very simple example here.
Consider an i-Phone or i-Pad as an innovation which although loaded with several sophisticated features is extremely easy to use for the end users leading to quick and higher adoption levels. Ease of use of course should not be at the cost of functionality.

Organisations should work on achieving a balance between satisfying all key core requirements and enhancing the user experience. While talking of ease of use, it is of utmost importance to speak from the perspective of the end users. Technology vendors and decision makers often confuse what is naturally easy for them as ease of use when discussing software.

Organisations must ensure that the new technology that they are planning to implement shall be easy to use not just for the stakeholders but the eventual users of the solution who will use it day in and day out. Technology must make things simpler for the end user.

Features need to be mapped with the needs within the organisation rather than looking at solutions which have the maximum number of features which don’t really satisfy the inherent needs in the process.

Strategy 2. User involvement

User involvement goes a long way in overcoming adoption challenges. User involvement can be accomplished by involving the end user in the initial stages of the software selection process. Users can be involved in the product demonstration process, which would help in conveying the benefits of the product to the end user for e.g. Using the ‘drag & drop’ feature within e-sourcing can be used to set up complex events in just minutes ensuring 100% category coverage. Demonstrating this to an end user will help convince him/her to create all events within the solution.

This process can now be followed up by a pilot process involving the end user. This would further convince the end user regarding the benefits by understanding how a particular feature directly benefits him in his work process.

Once the user receives a hands-on demonstration of the tool’s capabilities, make sure to have a feedback about the experience. Such an activity would ensure greater buy-in from the end user and also considerably reduce the objections arising post implementation.

Strategy 3. Training

Training should be arranged both pre and post implementation.. The training can be conducted by a variety of means . Combining periodic on-site training with regular feature level training provided online in the form of user sessions, webinars etc. is the most effective way of achieving user adoption goals. It is recommended to have the vendors / Suppliers involved at every stage of training to ensure a constant communication between the end user and the trainer.

Ideally there should be a training council formed comprising of members from both the vendor / Supplier and organisation. Once the training is conducted organisations can also look at conducting product knowledge tests and quizzes. This has dual benefits;

1. Makes the end user more responsible
2. Helps in judging the effectiveness of the training sessions

Strategy 4.

Once the technology has been implemented, top management needs to sit with the end user and decide on how to measure the performance of the end user. Including the end user in setting performance goals inculcates a lot of responsibility and accountability among the end users. Organisations must ensure setting fair, consistent and rigid goals which are transparent in every sense. I offer an example of how this could be accomplished.

Example 1. Consider an organisation who has just implemented an eSourcing solution. Suppose the organisation has 50 sourcing events scheduled to take place in the year. One of the check points could be to see how many of these sourcing events were channeled through the eSourcing platform. With deliberation organisations can set a goal of 80% of the sourcing events to be conducted through the e-sourcing platform.

Or another example

Example 2. If an organisation enters into say 100 contracts in a year, one of the objectives would be to have say 90% of contracts under the contract management system.

Once the objectives have been set by deliberation with the end user, the next logical step could be to link the incentives of the users with the objectives set. A simple incentive can be percentage sharing of the savings achieved from implementation of the solution. These can be benchmarked with similar numbers before the software was implemented to derive the results or direct benefits from the solution implementation.

Managing Change.

A learning orientation is critical during implementation stages. This brings us to the next point which is concerned with managing change. In order to successfully manage the change process, I recommend the following four steps:-

Inform

Brief the end user about the new technology and involve the end user in the evaluation stages.

Educate

Educate the end user about the product in the form of product training, workshops (video, onsite etc), webinars etc.

Monitor

Devise mutually accepted metrics for measuring the performance of the end user post implementation.

Reward

Linking the objectives with incentives, with disbursement of incentives related to the objective met.

Conclusion

Companies must do away with persuasion and edict as part of technology implementation and adoption processes since both involve little or no user input in decisions regarding implementation and adoption. Also, change management is the key to ensure buy-ins from the various related stakeholders thus ensuring benefits from the technology implementations.

Driving collaboration through Contracts Management

January 2, 2013

The contracting process has always been a major point of discontent between procurement and legal functions within an organisation. The goals of the legal department to achieve control and compliance often clash with procurement’s objectives to build collaborative relationships with suppliers. This has become extremely pronounced now, that procurement feels that it needs to become a strategic value contributor pushing the business performance of the organisation rather than simply focusing on getting the lowest price. A collaborative culture of contract authoring can be built using the right contract management technology, which can bring together the two functions and drive compliance and control while at the same time foster better supplier relationships, which in turn can deliver real savings with minimal risks to the supply chain. This paper takes an in-depth look at the reasons for the collaboration challenges between procurement and legal departments and the technology and process initiatives that can bridge these gaps.

Procurement and Legal at loggerheads

A recent study by IACCM throws up several results that suggest that the relationship between procurement and legal teams are less than cordial in most organisations. Nearly 70% of the study respondents felt that the relationship between the two functions needed to improve. It is not surprising that the primary reason for discontent between the two functions was the contracting process. The biggest fear that most legal departments have is the whether the procurement function can actually ensure that the contracting terms
will be adhered to post contract awarding. This may seem like a paradoxical situation. If the procurement function gets into contracts with suppliers in the first place, why would it not want to adhere to them?

There are several factors that result in maverick or off contract purchases. A majority of these occasions are primarily ad-hoc purchases, where buyers resort to buying from whichever supplier is available quickest and at the most opportune time. More maverick spending means higher total procurement costs and fewer on-time orders which is clearly not a recipe for achieving procurement efficiency. A research by APQC says that organisations with 16% maverick spend spend on an average nearly $17,000 more per procurement FTE as compared to organisations with maverick spend of 1%.. In fact even the on time delivery percentages for such organisations was nearly 6% lower than their peers. It is therefore definitely not surprising that legal teams have their doubts over the correct execution of contracts by the purchasing / procurement department. In the IACCM report referred to above governance of contracts post award and the ability of procurement to effectively manage contracts was cited by nearly 60% of the participants as a critical factor causing high level tension between procurement and legal functions.

Conflicting approaches with a common need for change

Analysing from an organisational perspective Legal and Procurement teams approach the contracting process from two very different angles. Legal teams look at contracts as tools to streamline processes and establish strict controls while procurement looks at it as the first step in establishing cost savings and supplier relationships. With the economy becoming vastly different – with supply chains becoming growingly interconnected and vast- these disparate perspectives of the contracting process have brought their own unique challenges for both the departments. Legal teams now have to handle a much larger number of contracts in multiple languages and with a wide variety of, at times very specific and unique contracting terms and conditions. The increased workload and the looming threat of non-compliance to several contracts makes it imperative for legal teams to manage contracts more efficiently and leverage the right automation to maintain control. Standardising the contract creation process is often made the primary goal.
Procurement, no longer a tactical function, needs to develop long term strategic relationships with suppliers and add more value to the company’s bottom line. This needs contracting to be more flexible to generate additional savings and contribute in value creation. This may include insertion of necessary clauses that help them take advantage of dynamic marketing conditions – say for example escalation and de-escalation clauses for highly volatile commodities. This of course becomes the first bone of contention between the two functions as one aims to standardise while the other needs more flexibility. The pressure between the two teams is to create a contracting process that not only helps procurement generate savings and account for frequent renegotiation but also helps legal enforce compliance in contract execution and get better outcomes out of the contract resulting in sustainable savings.

An often neglected area of discord between the two teams is the time taken to create contracts. Procurement with its need to take advantages of prevalent market conditions and the supplier’s disposition to discounts at the time of negotiation needs the contract creation and execution cycles to be as short as possible. Legal teams on the other hand have a primary responsibility to ensure every contract is free of risk to the organisation and hence may take frustratingly long periods to go through minute details in all clauses within the contract. This may result in procurement missing out on additional savings based on time discounts or market variations. Automated contract authoring technology that provides standard clauses and templates is the the answer to not only reducing the time for contract creation and approval but also ensuring that risk mitigation is easy.

The need of the hour

The need of the hour is for the contracting process to enable collaboration between the procurement and legal functions rather than be a cause for dissent. At a strategic level there is a growing need to redefine the relationship between the two functions. The contracting process needs to ensure

Real and incremental savings

Improved contract outcomes

Better process streamlining and compliance

Mitigation of risks while taking advantage of dynamic market conditions and better
renegotiation

Proactive and collaborative management of change

Powerful analytics that deliver strategic value

Getting the right solution

All this is easier said than done. It is imperative that a process is created within the organisation that makes contract authoring, creation and management simpler. Although getting buy in from employees in the procurement and legal teams is important, the first step to have an effective process in place to invest in the right technology. A contract management solution should be able to foster collaboration by providing clause libraries and standard contract templates that ensure contracts don’t miss out on any mandatory clauses and terms. This will help in reducing the time for legal review as well as ensuring minimum exposure to risk. Although it should provide a sufficient collection of standardised clauses and templates the contract management solution should also have customisable workflows that permit the insertion of clauses that help organisations take advantage of market conditions and supplier discounts. There should always be room for renegotiation especially for volatile commodities. This can be achieved by putting clauses like escalation/de-escalation clauses or conditions on contract renewal based on prevalent commodity market prices that insure the organisation against volatility risks

Technology as an enabler:

An ideal solution to this collaboration conundrum would be a solution that streamlines all the steps of the contract management process

A typical contract management process can be divided into three major stages.

Contract Authoring

The solution should be able to create contracts with pre-defined workflows that not only incorporate feedback from all relevant stakeholders during the contract creation process but also take care of exceptions and approvals. The authoring process can be made easier and more compliant by having a central template repository that contains all pre-defined clauses. Legal teams should have access to this repository to continuously update the latest clauses and ensure that the organisation has no unforeseen risk in getting into the contract. All contracts should be housed in a central repository where they can be tracked and managed. The contracts should also be easily available through simple search processes to ensure easy access to all necessary stakeholders.

Contract Negotiation

Contracts should contain well-defined service level agreements (SLA), which are transparent to suppliers. The contracts should be the basis of all supplier performance measurement and should be the guiding factor to defining the KPIs for all supplier performance management processes. Alerts should be configurable within the contract management system for tracking compliance both for users within the organisation as well as supplier performance to contracted terms. Besides compliance alerts the solutions should also have alerts for contract renewals so that evergreen contracts don’t get renewed repeatedly without the scope of renegotiation-something legal teams always have on their cross hairs. Contracting solutions should be able to match contracts with spending data to help track any maverick spend and in turn provide potential opportunities to save. Analytics should also be provided on supplier performance in term of discounts adhered to and quality.

Contract Sign Off’s

Electronic signatures have to be mandatory for any contract management solution implemented and should be enabled during various stages of the contract creation and approval process.

Reaping the desired results

An effective contract management process if setup as mentioned above can result in the following benefits

Reaping the desired results
An effective contract management process if setup as mentioned above can result in the following benefits

Risk mitigation due to increased visibility into existing contracts

Improved contracting process and reduction in overall cycle time

Adherence to regulatory compliance requirements due to increased tracking of contract compliance

Increased compliance to terms and conditions

Spend compliance ensuring sustained savings. In fact a recent survey of nearly 600 procurement professionals suggested that doubling contract compliance leads to a near 600% increase in savings generated through spend management activities

Better collaboration due to standardised processes and agreed SLA’s between Legal and Procurement as well as procurement and suppliers

In closing an effective contract management solution can help organisations generate sustained savings and build effective supplier relationships. But one of the major benefits of implementing a robust contracting solution-that both stores and authors contracts-is increased collaboration between procurement and legal working to the benefit of both. Procurement is able to drive sustainable savings and meet its goal of being a strategic value contributor to the organisation while legal teams are able to mitigate risks to the organisation and ensure control and compliance.

Planning and Scheduling in the Supply Chain

December 28, 2012

Before relying on an ERP system to manage planning and scheduling activities, all companies should first make sure that the right processes are in place, standardized and uniformly used across the enterprise. Robust processes and policies will allow the company to generate accurate and timely data. Only then will a company be in a position to use an ERP system to improve planning and scheduling activities.

Major companies have invested heavily in ERP implementations and have suffered business disruptions whilst implementations have taken place. Despite good intentions, most companies haven’t come close to realizing the value achieved by those featured in various ERP case studies across the globe. Revenues have not increased by 20%. Operating costs have not fallen by 15%. Finally, on-time deliveries have never reached record highs of 95%.

So what is stopping companies achieving ROI? In my mind it is very clear that companies lack understanding and commitment! Firstly, the understanding that business value is inherently linked to business change, not systems change. From the commitment side it’s all about executing a good plan. However, this is another story! What we are confronted with now is that we have an ERP that is implemented which may or may not have achieved its ROI. Now we have got to get down to the operational level and try and recover what may have been lost or disrupted during the implementation however long ago it was.

The opportunity we are now presented with covers the whole enterprise and should allow the company to gain post implementation value, this area I am referring to is the whole Supply Chain, starting at the front end with Planning and Forecasting all the way through to settlements (including cash flow management). The area that we will concentrate upon here of course is replenishment planning, which by its very nature covers nearly all aspects within Supply Chain Management. This is where a company’s supply meets its demand!

Companies that plan well are more likely to:

·         Anticipate demand and respond nimbly to unforeseen market shifts

·         Have higher customer satisfaction rates

·         Have less cash tied up in obsolescing inventory

It’s where forecasts are converted into purchase and/or production orders. Planning activities influence inventory levels and, by extension, cash flow. The sad truth is that most companies’ ERP systems issue poor planning recommendations – ones that, if acted upon, would lead to a huge mismatch between supply and demand. Because those system-generated recommendations don’t reflect true operating realities; planners, purchasers, materials managers, production managers and others often ignore system-generated planning signals and advice.

Almost always, however, poor planning advice has little to do with the software itself. Software is made up of a bunch of 0s and 1s, and simply generates outputs from formulae and rules. In all likelihood, the formulae and rules were programmed just fine. Rather, poor recommendations are usually the result of inaccurate and untimely base data.

The good news is that any company can significantly improve its planning and scheduling activities. And, if it does, it’ll go a long way to generating that seemingly elusive ERP-related business value. From a high level, there are three key success factor to planning. They are:

·         Accurate Item and Movement Data – The system needs accurate data to simulate a company’s operating reality. Key data requirements include item-level order modifiers), bill of materials and routings.

·         Accurate Inventory Data – If inventory counts and movements are not accurately reflected in the system, the planning engine will either make recommendations that cause the company to 1) prematurely order inventory or 2) deliver items beyond the due date. The former case constrains cash flow and unnecessarily increases the value of a depreciating asset class. The latter case leads to higher rates of customer dissatisfaction and turnover. In our experience, a planning engine will only be capable of issuing meaningful planning recommendations when a company:

o    Has accuracy rates of 95% for its on-hand inventory

o    Maintains accurate demand and supply forecasts

o    Knows its minimum inventory level requirements (safety stock)

·         Timely Recording of Material Movements – The status of purchase orders and production orders varies over time, as materials flow through supply chains and production. To ensure that planning signals and recommendations are meaningful, the company needs to update the system promptly. Businesses can choose to do this a couple of ways – through manual input or in an automated fashion.

Legacy sourcing activities still prevail…..

December 21, 2012

While these objectives may sound logical, many sourcing teams defeat their efforts to identify and select the optimal supplier by reverting to some bad habits. Those bad habits include:

1). Preventing personal dialogue between prospective suppliers and decision makers
2). Sending RFP’s that require an extremely time-consuming first response

Why do sourcing teams have these bad habits in the first place? What are their underlying interests?

First, the prevention of personal dialogue has a few elements to it. One element is that procurement professionals always strive to ensure a “level playing field” equitable treatment and a fair process for all suppliers. Procurement ethics dictate that one supplier should not be given information that is not made available to all other suppliers because, then, it would appear that someone in the buying organization is trying to facilitate a pre-determined “favorite” supplier being selected. Another element is that prevention of personal dialogue is designed to protect the time of executives within the buying organization. These are busy people, naturally, so the tendency is to block anything from being added to their already full plate.

Second, the voluminous response RFP has its rationale as well. Sourcing teams have the desire to minimize the number of steps required to get from Point A – issuing an RFP – to Point B – selecting a supplier. So, the tendency is to want to capture all of the required information in one fell swoop.
While those are noble interests, the execution of processes to support those interests is flawed.

Here is why.

In terms of preventing personal dialogue, sourcing teams are failing to realize how personal dialogue is an enabler of sourcing success, rather than a hindrance to it. A conversation can be held professionally without tarnishing a fair process or creating a perception of an ethical breach. Actually, preventing personal dialogue can be perceived as an ethically-shady practice. While procurement professionals commonly feel that not permitting conversations between suppliers and decision-makers preserves the perception of an ethical sourcing process, the opposite may be true. Suppliers would argue that not permitting such conversations perpetuates the perception of an unethical sourcing process where the successful bidder is pre-determined, other bidders are being “used” solely to drive down that supplier’s price, and the sourcing team is steadfastly trying to hide that.

There is another flawed line of thinking with regard to preventing personal dialogue during the sourcing process. That line of thinking relates to the interest of protecting procurement executives’ time. Simplified, it is a procurement executive’s job to build the strongest supply chain possible for his or her organization. By refusing to talk to qualified prospective suppliers and, thus, discouraging them from participating in sourcing processes a procurement executive is failing to fulfill his or her duty of building the strongest supply chain. Yes, time is scarce and must be managed wisely, but attracting a strong supply base is a wise investment of time.

Finally, while minimizing the number of steps of the sourcing process may have good intentions, efficiency should never trump effectiveness. Let’s compare two scenarios.
In Scenario A, an RFP was sent to five carefully-selected suppliers. That RFP required a 50-page response. Only two suppliers responded and neither of those suppliers had a reputation for being one of the top two suppliers in the industry. The other three suppliers felt that a 50-page response was too much work for a process with an uncertain outcome and declined to respond.
In Scenario B, an RFI was sent to five carefully-selected suppliers. That RFI required a 10-page response. All five suppliers responded. The sourcing team then sent an RFP to the four suppliers who had the most attractive responses to the RFI. That RFP told the suppliers that they were receiving the RFP because they were shortlisted based on their response to the RFI. The RFP required a 40-page response. All four suppliers responded. Because they had been shortlisted, they each believed that they had a legitimate chance of winning the business. This two-step process took an additional week compared to Scenario A. But was it worth it to have more competition, more options, and more highly-qualified suppliers to choose from? Most procurement professionals would argue that it was indeed worth it.

Vendor Rating and Management

December 20, 2012

Vendor rating is the result of a formal vendor evaluation system. Vendors or suppliers are given standing, status, or title according to their attainment of some level of performance, such as delivery, lead time, quality, price, or some combination of variables. The motivation for the establishment of such a rating system is part of the effort of manufacturers and service firms to ensure that the desired characteristics of a purchased product or service is built in and not determined later by some after-the-fact indicator. The vendor rating may take the form of a hierarchical ranking from poor to excellent and whatever rankings the firm chooses to insert in between the two. For some firms, the vendor rating may come in the form of some sort of award system or as some variation of certification. Much of this attention to vendor rating is a direct result of the widespread implementation of the just-in-time concept  and its focus on the critical role of the buyer-supplier relationship.

Most firms want vendors that will produce all of the products and services defect-free and deliver them just in time (or as close to this ideal as reasonably possible). Some type of vehicle is needed to determine which supplying firms are capable of coming satisfactorily close to this and thus to be retained as current suppliers. One such vehicle is the vendor rating.

In order to accomplish the rating of vendors, some sort of review process must take place. The process begins with the identification of vendors who not only can supply the needed product or service but is a strategic match for the buying firm. Then important factors to be used as criteria for vendor evaluation are determined. These are usually variables that add value to the process through increased service or decreased cost. After determining which factors are critical, a method is devised that allows the vendor to be judged or rated on each individual factor.

It could be numeric rating or a Likert-scale ranking. The individual ratings can then be weighted according to importance, and pooled to arrive at an overall vendor rating. The process can be somewhat complex in that many factors can be complementary or conflicting. The process is further complicated by fact that some factors are quantitatively measured and others subjectively.

Once established, the rating system must be introduced to the supplying firm through some sort of formal education process. Once the buying firm is assured that the vendor understands what is expected and is able and willing to participate, the evaluation process can begin. The evaluation could be an ongoing process or it could occur within a predetermined time frame, such as quarterly. Of course the rating must be conveyed to the participating vendor with some firms actually publishing overall vendor standings. If problems are exposed, the vendor should formally present an action plan designed to overcome any problems that may have surfaced. Many buying firms require the vendor to show continuing improvement in predetermined critical areas.

CRITERIA FOR EVALUATION

Vendor performance is usually evaluated in the areas of pricing, quality, delivery, and service. Each area has a number of factors that some firms deem critical to successful vendor performance.

Pricing factors include the following:

  • Competitive pricing. The prices paid should be comparable to those of vendors providing similar product and services. Quote requests should compare favorably to other vendors.
  • Price stability. Prices should be reasonably stable over time.
  • Price accuracy. There should be a low number of variances from purchase-order prices on invoiced received.
  • Advance notice of price changes. The vendor should provide adequate advance notice of price changes.
  • Sensitive to costs. The vendor should demonstrate respect for the customer firm’s bottom line and show an understanding of its needs. Possible cost savings could be suggested. The vendor should also exhibit knowledge of the market and share this insight with the buying firm.
  • Billing. Are vendor invoices are accurate? The average length of time to receive credit memos should be reasonable. Estimates should not vary significantly from the final invoice. Effective vendor bills are timely and easy to read and understand.

Quality factors include:

  • Compliance with purchase order. The vendor should comply with terms and conditions as stated in the purchase order. Does the vendor show an understanding of the customer firm’s expectations?
  • Conformity to specifications. The product or service must conform to the specifications identified in the request for proposal and purchase order. Does the product perform as expected?
  • Reliability. Is the rate of product failure within reasonable limits?
  • Reliability of repairs. Is all repair and rework acceptable?
  • Durability. Is the time until replacement is necessary reasonable?
  • Support. Is quality support available from the vendor? Immediate response to and resolution of the problem is desirable.
  • Warranty. The length and provisions of warranty protection offered should be reasonable. Are warranty problems resolved in a timely manner?
  • State-of-the-art product/service. Does the vendor offer products and services that are consistent with the industry state-of-the-art? The vendor should consistently refresh product life by adding enhancements. It should also work with the buying firm in new product development.

Delivery factors include the following:

  • Time. Does the vendor deliver products and services on time; is the actual receipt date on or close to the promised date? Does the promised date correspond to the vendor’s published lead times? Also, are requests for information, proposals, and quotes swiftly answered?
  • Quantity. Does the vendor deliver the correct items or services in the contracted quantity?
  • Lead time. Is the average time for delivery comparable to that of other vendors for similar products and services?
  • Packaging. Packaging should be sturdy, suitable, properly marked, and undamaged. Pallets should be the proper size with no overhang.
  • Documentation. Does the vendor furnish proper documents (packing slips, invoices, technical manual, etc.) with correct material codes and proper purchase order numbers?
  • Emergency delivery. Does the vendor demonstrate extra effort to meet requirements when an emergency delivery is requested?

Finally, these are service factors to consider:

  • Good vendor representatives have sincere desire to serve. Vendor reps display courteous and professional approach, and handle complaints effectively. The vendor should also provide up-to-date catalogues, price information, and technical information. Does the vendor act as the buying firm’s advocate within the supplying firm?
  • Inside sales. Inside sales should display knowledge of buying firms needs. It should also be helpful with customer inquiries involving order confirmation, shipping schedules, shipping discrepancies, and invoice errors.
  • Technical support. Does the vendor provide technical support for maintenance, repair, and installation situations? Does it provide technical instructions, documentation, general information? Are support personnel courteous, professional, and knowledgeable? The vendor should provide training on the effective use of its products or services.
  • Emergency support. Does the vendor provide emergency support for repair or replacement of a failed product.
  • Problem resolution. The vendor should respond in a timely manner to resolve problems. An excellent vendor provides follow-up on status of problem correction.

In an article produced by Supply Management states that while pricing, quality, delivery, and service are suitable for supplies that are not essential to the continued success of the buying firm, a more comprehensive approach is needed for suppliers that are critical to the success of the firm’s strategy or competitive advantage. For firms that fall into the latter category performance may need to be measured by the following 7 C’s.

  1. Competency—managerial, technical, administrative, and professional competence of the supplying firm.
  2. Capacity—supplier’s ability to meet physical, intellectual and financial requirements.
  3. Commitment—supplier’s willingness to commit physical, intellectual and financial resources.
  4. Control—effective management control and information systems.
  5. Cash resources—financial resources and stability of the supplier. Profit, ROI, ROE, asset-turnover ratio.
  6. Cost—total acquisition cost, not just price.
  7. Consistency—supplier’s ability to exhibit quality and reliability over time.

If two or more firms supply the same or similar products or services, a standard set of criteria can apply to the vendor’s performance evaluation. However, for different types of firms or firms supplying different products or services, standardized evaluation criteria may not be valid. In this case, the buying firm will have to adjust its criteria for the individual vendor. For example, Honda of America adjusts its performance criteria to account for the impact of supplier problems on consumer satisfaction or safety. A supplier of brakes would be held to a stricter standard than a supplier of radio knobs.

AWARDS AND CERTIFICATION

Many buying firms utilize awards and certification programs to rate vendors. Attainment of certification status or an award serves as an indicator of supplier excellence. Certification and awards-program recognition represents a final step in an intense journey that involves rigorous data collection under the total-quality-management-rubric as well as multitudes of meetings with suppliers and purchasing internal customers. Serious buying firms view these programs as an integral part of their overall efforts to improve the total value of the company.

The attainment of a supplier award usually serves as an indication that the vendor has been rated as excellent. Intel awards their best suppliers the Supplier Continuous Quality Improvement Award (SCQI). Other firms may utilize a hierarchy of awards to indicate varying degrees of performance from satisfactory to excellent. DaimlerChrysler awards its best suppliers the Gold Pentastar Award. Several hundred vending firms receive this award per year. However, only a handful (less than a dozen) of DaimlerChrysler’s vendors are good enough to garner the Platinum Pentastar Award.

For other firms, supplier certification is desirable. Supplier certification can be defined as a process for ensuring that suppliers maintain specific levels of performance in the areas of price, quality, delivery, and service. Certification implies that participating firms have reached a level of excellence that other firms were unable or unwilling to achieve. For example a quality certified firm maintains a level of quality such that customer-receiving inspection may be utilized with decreasing frequency up to the point where it is eliminated altogether. Theoretically, this will ensure that all of the supplier’s products meet the customer’s product specifications. In this case, the goal of supplier certification is quality at the source.

While it is uncertain whether individual firms are consistent in the manner in which they certify vendors, a quality certification would likely require that the vending firm be part of a formal education program, utilize statistical process control (SPC), and have a quality assurance plan (set written procedures).

BENEFITS

Benefits of vendor rating systems include:

  • Helping minimize subjectivity in judgment and make it possible to consider all relevant criteria in assessing suppliers.
  • Providing feedback from all areas in one package.
  • Facilitating better communication with vendors.
  • Providing overall control of the vendor base.
  • Requiring specific action to correct identified performance weaknesses.
  • Establishing continuous review standards for vendors, thus ensuring continuous improvement of vendor performance.
  • Building vendor partnerships, especially with suppliers having strategic links.
  • Developing a performance-based culture.

Vendor ratings systems provide a process for measuring those factors that add value to the buying firm through value addition or decreased cost. The process will continually evolve and the criteria will change to meet current issues and concerns.

For example, today the supplier evaluation must now reflect the strategic direction of the buying company’s environmental initiatives. As a result, some firms have recently developed supplier evaluation systems that place significant weight on environmental criteria. It is now an important criteria for the evaluation of suppliers that they have firm CSR programmes in place and that they are observant of governmental rules and regulations.

Embarking on the eBusiness Journey.

December 10, 2012

There are companies still today who are reluctant to embark on the eBusiness journey, why is this? It is my belief that eBusiness is perceived as an expensive and frightening experience, also that everybody wants to sell a solution without really educating the company in how it can transform the business, thus making considerable savings in time and money. Technology and Business processes have changed considerably in the last decade, making implementations and change much simpler to undertake.

However, it is important to understand the business environment that you are operating under. With this in mind there are at least seven questions that should be asked in any business prior to embarking on the eBusiness journey. Answering these questions will allow the business to either embark on the journey (or not).

Question 1. Do I understand my Business today?

How is my business conducted? Is it difficult to connect with my Suppliers? Where am I spending money and on what? Do I have Administrative Burdens in the way I conduct business today? What is stopping me from moving forward? Have I got an optimized organizational structure?

Question 2. Am I ready to change the way I do Business?

Has the business got the appetite for change? Do I have change management agents in my Business? Do I have an organization that resists change?

Question 3. Do I have a strategy in place for using eBusiness?

What are my Pain points? Do I want to be a business Shaper or a business Adopter? Does the Business understand eBusiness? Am I involved in any eBusiness forums?

Question 4. What are my competitors doing?

Who has embraced eBusiness and why? Can I benchmark my business with others? What etools do they employ?

Question 5. Do I have to build my own applications?

Do I have an Infrastructure that will enable me to implement eBusiness? Are my systems bespoke? Is ICT considered an overhead in my business?

Question 6. What are my strengths and weaknesses?

Is there time liberation in the Business? Is there systems proliferation? Am I firefighting in my business? Do I empower my employees?

Question 7. Do I have well defined processes in place?

Are my processes visible end to end? Are controls in place but are too rigid? Do I have standards in place? Have I got good content? Are there to many levels of authority?

I strongly believe that every company should ask these questions of itself not only to assist it in overcoming the perceived fears of eBusiness but also to evaluate itself in the business environment today. It may result in no actual change taking place as the practices and processes are fit for purpose in the business environment that the company operates under. However, without analysis who will ever know!

Risks in eAuctions

November 30, 2012

Today I want to continue on the theme of eAuctions, this has been a topic of mine for well over a decade since I first introduced the concept into the Shell Group of Companies in Oman. Still today eAuctions are not widely understood in terms of the risks involved to both the buyer and seller, however. with careful planning and engagement between the parties and stakeholder engagement the eAuction tools and techniques can be a win win situation for both parties. As an implementer, executor, researcher, mentor on the subject of Sourcing I have highlighted what I consider to be some of the most critical issues to consider when embarking on the eAuction journey.

1. Incomplete Evaluation Criteria.

No two auctions are the same, even if they are for the same good or service. Market conditions change over time which affects the evaluation criteria; therefore it is important that you engage with potential bidders well in advance of the planned event to ensure that all the factors and weightings are complete and appropriate.

2. Understanding of the Bid Rules.

Well before the event and once the Strategy, event type and evaluation criteria have been established, each bidder invited to participate in the event should clearly understand the bidding rules. This will avoid complications either during or after the event. Many companies who engage in eAuctions now require that the invitee sign and return a bid acceptance showing that they understand the bid rules completely to the event administration coordinators.

3. Stakeholder Politics & Policies.

It is important to engage at the most senior level to ensure that stakeholder politics or policies do not disrupt the event or the use of eAuctions in general. This is not only true for the buyer side, but also for the seller side. Many CEO’s on the sell side only see half the story about the use of eAuctions and in many cases will go out of their way to get the event changed back to a more traditional process. There is a fear that they will give away their competitive advantage in an eAuction. The only way to address this is by education and engagement at the most senior levels ensuring that they understand the benefits for both Buyer and seller alike. This is also true for Government tender Boards as well.

4. Minimal Engagement.

All too often companies are in a rush to get the good or service procured to meet a customer demand and therefore forfeit investment in time to engage properly with the community. Buyers will often select a short list of people to get the job done quickly, this poses a risk to the buyers in that they are favoring a restricted group of bidders. The result of this action is that the rest of the community will disregard future request and possibly boycott the whole eAuction process in the future.

5. Education and Training.

This is an important Critical Success factor for any eAuction provider or Client who are administering auctions themselves. It is perceived that the low adoption of eAuctions across the Globe is due to not enough education and training even at the most senior levels right down to ground level of buyers and sellers alike. Solution providers do not provide enough expertise in the use of eAuctions which is based upon their lack of understanding of the business in general. Continuous training and education is missing in many of the solutions being provided today.

6. eAuction Administration.

In many instances there is a perception that the eAuction administration is collaborating with the buyer and placing bids behind the scene in order to drive the prices down. It is important the administration of the auction is seen as completely neutral and serving the best interests of the buyer and seller alike.

7. Backup Process

Where auctions are being run in remote area or in areas of low infrastructure, there is a risk of the auction failure. Adequate provisions and procedures should be employed to ensure that the auction can continue. In the bid rules backup procedures and processes should be spelt out and agreed.

8. Bidding Strategy (Supplier).

The supplier (bidder) should have his own strategy when going into the event. He should understand his own supply chain and the costs involved in order that he will know when he has placed his final bid, unable to go lower. This will ensure that a fair market price is obtained for the good and service rather than just the lowest price. Without this strategy there is a risk that the supplier will not actually be able to execute the good or service without claiming additional funds after the award.

9. Event Feedback.

Once the event has been concluded and a subsequent award to the winning bidder, feedback should be given to all that participated (winners and losers). This will show that the event was fair and open and the losers will see what they have to do in subsequent events. This is a critical success factor in maintaining supplier confidence in the process.

Phishing for Business

November 29, 2012

During any period of economic downtown Phishing has found a breeding ground for new socially engineered attempts to defraud individuals, businesses and consumers alike. The potential impact on business is huge, whether it’s an individual employee, business or customer. Phishing is the process of luring unsuspecting users into providing sensitive information for identity or business theft. In the last decade since Phishing arrived on the scene it’s been rapidly growing, therefore organizations need to keep abreast of the latest methods employed by the cyber criminal and proactively take steps to prevent this type of fraud.
Spear Phishing is a targeted version of Phishing, which unlike the more common phishing techniques actually targets known individuals of Banks, Financial institutions or other types of Organizations. Corporate employees are also being targeted by cyber criminals to provide company banking information, vendor and customer databases and other information to facilitate cyber crime. Business services phishing which has recently started to target businesses using Yahoo and Google Ad Words are receiving emails encouraging them to login to the system and update their accounts and provide updated credit card details. In some attacks, to enhance their success rate the cyber criminal is using an e-Card which comes via email and seems legitimate and will take the user to a website whereby a Trojan can be downloaded to the user’s computer for the keylogger to subsequently access company information, user id’s and passwords.
Phishing knows no limits; the cyber criminal is also now using the Mobile Phone and SMS Text messages to Phish for business. This is known as Smishing! The most common technique is to send a text message to the mobile phone stating that the bank account, ATM or Credit card has been compromised and subsequently has been blocked. The message asks that you call a specific number or visit a website to reactivate the account or card asking for the Account number and pin number.
While the financial industry seems to be the most prominent target and continues to be so, others like auctions sites, payments services, retail and social networking sites are increasingly coming under attack.
There is no 100% sure fire way of preventing an attack but there are technologies available to assist, implementation of Secure Socket Layers (SSL) and Extended Validation (EV) Secure Socket Layers are critical in the fight against phishing and other methods of cyber crime. In addition to technologies that assist with prevention of attacks employees, businesses and customers need to be educated in safe internet practices and how to avoid cyber crime. Teaching of how recognize the signs a phishing attempt such as Misspellings, generic greetings instead of a personal one, urgent calls for action, requests for personal information and fake domain names and links.
Without doubt Phishing will continue to evolve and will take advantage of human behaviors such as compassion, trust and curiosity (as witnessed in the Haiti Earthquake disaster). Protecting yourself, a business or a customer relationship requires diligence and education to prevent losses to fraud.