Could You Be Doing It Right? Part I: Category Management

In last Friday’s post, we asked if you were doing it wrong. In particular, we mentioned category management, supply chain risk monitoring, and big data, and asked if you were doing these three thing wrong. We noted that even though a number of companies have jumped on these runaway bandwagons, most have yet to grasp the reigns and take control of the wagon and get it on the right track.

Why is that?

Fundamentally, it’s the same reason that there are no world class Procurement Organizations in Asia Pacific — the classic Triple-T problem.

  • Talent
    the organizations don’t have the right talent to properly manage the initiative
  • Technology
    the organizations don’t have the right platforms to capture the right data and support the right processes
  • Transition Management
    the organizations don’t have the right processes in place to handle the necessary organizational shift to properly manage the initiative

Once the talent, technology, and transition management is in place, the organization has what it needs to fully embrace the initiative and take it to the next level. And do it right.

Where should your Supply Management Organization start? By identifying the core capabilities that are required in each “T” category and finding the right talent, technology, and transition management plan to support the initiative, the organization will be well on its way.

In the rest of this post, we’re going to talk about the requirements for an organization to get on the right category management track.

Talent for Category Management

Good category managers need at least the following hard and soft skills:

  • Analysis
    to determine the volume and spend in the category
  • Modelling
    to determine the major cost components, and cost drivers, of the major products or services in the category
  • Commodity Market Expertise
    in the major raw materials and commodities used in the production of the major products in the category
  • Stakeholder Management
    as savings and performance improvement will usually come from consolidating related items with a smaller set of suppliers, which is going to ruffle some feathers when some departments lose their coveted suppliers and supply relationships.
  • Negotiation
    since not only will the individual need to consolidate a set of commodity purchases with a single supplier, but the individual will also need to cut a good deal and maybe even convince the supplier to take some business it normally wouldn’t want
  • Change Management
    since good category management typically requires changing the way the organization conducts business today

Technology for Category Management

Appropriate technology platforms for category management will have at least the following features:

  • Spend Analytics
    with extensive aggregation, cubing, and filtering capability
    as the category manager needs to not only extract volume and spend, but identify related products and services based on components, raw-materials, and sub/related services
  • Should Cost Modelling
    which allows the category manager to understand not only what the product should cost but the primary cost components and the appropriate inputs to an optimization model
  • (Real-Time) Market Data
    which allows the category manager to track historical market trends and predict future prices to time the market if prices are volatile
  • Supplier Performance Management
    which allows the category manager to track and manage supplier performance
  • RFX
    to manage the data collection and track supplier bids and responses before and during negotiations

Transition to Category Management

In order to transition to proper category management, the organization needs to hire someone with good change management skills and give that person the tools he or she needs to get it done. That person also needs to be a natural born leader and someone who can work with teams to get it done.

This isn’t a complete (laundry) list of what is required for proper category management, but it’s a good starting point. Get the right talent, technology, and transition management in place, and your organization will be well on its way to category management success.

SIM? Is It Old News or a Shiny New Pair of Shoes? Part II

As per our last post, SIM (Supplier Information Management) is a mature and stable technology with a large number of suppliers not only providing the tools and best practices to manage supplier life-cycles, but to manage risk, compliance, receivables, and even spend repositories for spend management. It’s almost a commodity in the Supply Management Space, and an acquisition thereof is not likely to get baby that new pair of shoes anytime soon. Or is it?

As great as they are, most SIM products — stand alone best-of-breed or integrated suite offerings, have at least one weakness — and often two. In particular, the data model and the workflow. Just like early spend analysis solutions were often tied to one, rigid, UNSPSC data model, most current SIM solutions are also tied to one, rather rigid, data model. In addition, most of those solutions with some SLM (Supplier Lifecycle Management) also have rigid workflows.

This worked well when business processes were predictable and stable and corresponded to products with long life-spans. But the times they-have-a-changed. These days, product life-spans are measured in quarters, and not years, if we are lucky. Associated processes change to not only accommodate the new product demands but to adapt to new technologies and new business requirements. If the workflow can’t adapt, the capability, and overall usefulness, of the tool is limited.

A SIM product that could not only allow a user to define, and redefine, data models as necessary but define, and redefine, workflows as necessary would offer more value than current SIM platforms. And if that product could also maintain full audit trails, which not only track data changes but model and workflow changes, and insure that old records and workflows can still be seamlessly accessed when the data model or workflow changes, then that would be even better.

And if that SIM product went even further and allowed for dynamic organizational, supply base, and user-defined hierarchies, that would be icing on the cake. Supply Chains are not boring because they are not static. They are constantly changing. The supply chain can not only change from product to product, but batch to batch as a primary raw material or part supplier runs out of material, becomes unreachable due to a political or natural disaster, or simply gets greedy and forces the higher tier supplier to find a new source. A good SIM solution will allow the supply chain map to evolve in real-time as the supply chain evolves. Moreover, with acquisitions, mergers, and spin-offs being the normal modus operandi for many businesses, a SIM solution that can easily adapt the organizational data model is also required. Finally, for maximum productivity, a user needs to be able to maintain their own view of the supply chain, back and front, relevant to them. They need to maintain their view of the relevant multi-tier supply base and the relevant hierarchies in their organization that they have to report to and serve.

In other words, a SIM tool that allowed for a truly dynamic data model, workflow, and supply chain organization map could bring a new wave of value to a modern Supply Management organization and the individual with the foresight to acquire such a tool might just get baby a new set of shoes. But is there such a solution?

Stay tuned!

SIM? Is It Old News or a Shiny New Pair of Shoes? Part I

Supplier Information Management, also known as SIM (but which has almost nothing to do with your Subscriber Identity Module card in your cell phone), is not new. The early leader in this space, Aravo, which boasted the likes of GE and CISCO as clients, was formed in 2000 and followed not only by a slew of companies trying to be best of breed in SIM (including AECSoft, now owned by SciQuest, Hiperos, and Lavante, to name a few) but by a slew of suite vendors that began to implement enhanced SIM into their platforms (including Ariba, Iasta, and Zycus).

And most of the basic features are now commodity. Try to find a vendor that sells SIM that doesn’t track all headquarter location, financial, core product, service, insurance, and third party risk information associated with a tier 1 supplier. Most of the good vendors also track third party credentials, compliance information against all relevant laws and directives, internal performance metrics and third party ratings, and even integration with third party supplier directories and databases.

And the uses are well known.

  • Where are the bulk of my suppliers located?
  • What is the financial health (risk score) of my top 100 suppliers?
  • Are any of my products out of compliance with regulations in one or more countries?
  • Do all of my suppliers have their relevant insurance certificates up to date?
  • Who are my riskiest suppliers?
  • Have all of my suppliers verified their primary contacts in the last six months?

And the more mature companies, to try and maintain an edge, maintain their customer base, and expand into new companies and additional verticals have started to integrate additional, and related, functionality. Aravo evolved into a full Supplier Lifecycle Management solution that balanced compliance, performance, and risk management. Hiperos is focussing on Third Party Management and on Compliance and Risk Management in particular. For example, their compliance management solutions include code of conduct, diversity management, insurance attestation, social accountability, and sustainability. Lavante is focussing on on-boarding and integrating SIM with audit recovery services.

When all is said and done, SIM seems like a mature space that is old news in Supply Management. And betting on it probably musters the image of an old gambler clutching dice in one hand and his last dollar in the other mumbling “baby needs a new pair of shoes“. But is it a bet you would lose?

Procurement — Why We Matter Even More!

Last week, we re-ran a post by David Furth, former VP of Marketing at Hiperos and current President of Leap the Pond, on Procurement – Why We Really Matter. In this post, David explained that Procurement is on the verge of its next major transformation where it will continuously assess risk and introduce integrated processes and controls across the company to mitigate the risk by working closely with other functional areas, business lines, and geographies. In addition, Procurement will implement management control programs that actively monitor both performance and compliance to help ensure suppliers are meeting all their obligations.

David was, and is, right. Now that everything is outsourced, resourced, and optimized to razor-thin JIT models, risk management — and continuous monitoring — is key. But that is just the beginning.

It’s not just risk monitoring, but compliance monitoring and performance monitoring. (Safety) regulations (like RoHS, WEEE, and REACH) are coming into effect fast and furious around the globe, as are bans on toxic substances, materials and products that can be used to create dangerous weapons, and conflict minerals and diamonds. As a result, compliance monitoring is becoming more and more important.

But so is performance monitoring. You can’t ignore the importance of quality, reliability, and safety as it is your reputation — and bank account — on the line. If the products you deliver continually break under warranty, even if you have a policy that you can return for replacement, you’re still losing the profit, the customer’s trust, and the costs associated with processing the return. If the products hurt someone — you’re getting sued, not your supplier. And if the products don’t perform up to spec, even if they don’t break, the customer ain’t coming back.

And even though savings aren’t everything, because it all comes down to ROI — value delivered by your organization. However, if your organization is to remain competitive, it still has to keep costs in check and at least keep costs in line with your competition. Often the only way to do this is to identify when you need to help your suppliers decrease their costs and increase their productivity, and this requires constant performance monitoring.

And who else in the organization can properly monitor risk, compliance, and supplier performance? Not manufacturing. Not logistics. And definitely not finance. That’s why Procurement Matters — Now More Than Ever.

1950 Years Ago Today

The Great Fire of Rome, which burned for 6 days, broke out in the merchant district and caused widespread devastation. It was an early example of how a natural disaster could bring a supply chain to its knees (as it wiped up most of the goods in Rome, which were then stored in shops).

The moral of the story is clear — Natural and Man-Made Disasters have always been with us and always will.