How Do You Identify The Day After Tomorrow’s Supply Chain Paupers?

Well, assuming the day after tomorrow comes and they are still around the day after tomorrow, they will be easy to spot. Not only will they still be trying to use Excel, but they will still be using Excel and will only recently have started exchanging documents using XML, using last decade’s e-Procurement technology.

They will not have advanced to modern e-Procurement applications, yet alone modern sourcing or supply chain visibility solutions. They will be in the process of simply moving from paper to e-Paper, trying to still conduct RFIs through e-mail with Excel (and just uploading the results to the first generation decade(s)-old e-Procurement solution), and generally trying to keep their outdated procurement processes in tact.

However, as we now know, first generation procurement and sourcing, focused primarily on e-document exchange, simple RFXs, the odd auction, and basic reporting is not enough. You need modern e-catalog management for procurement spot buys, analytics for opportunity identification, optimization for at least TCO management (if not TVM), and SRM for supplier information, relationship, and performance management.

But this is not enough. These day’s, there’s never enough time to sift through all the data to identify the opportunities, never enough time to collect enough market data to qualify even the ones you have identified, and certainly never enough time to construct category specific models on even a fraction of those to determine if they opportunities will be realized with an appropriate sourcing event — which can take years of experience to properly identify.

You need a next generation solution that can automatically collect, maintain over time, and trend market pricing data; run all your data through multiple types of automatic analysis and compare your spend against historical spend and market data (and look for variances); pull out the categories with opportunities; run trending algorithms to project your demand against expected contract prices based upon projected market demand, supply / demand (im)balance, and economic factors; calculate the potential savings if nothing was done; use historical data and automated reasoning (enriched with context) to (probabilistically) identify the best sourcing or procurement strategy; and then use appropriate workflow automation to automate as much of the event as possible (and if it is a spot-buy under a threshold, automatically procure from a catalog, an approved supplier under contract, or a three-bids-and-a-buy RFQ against approved suppliers).

In modern terms, the next generation solutions will be Cognitive Sourcing or Cognitive Procurement solutions. While they are not true artificial intelligence, with enough data and great models, you don’t need true AI to automate acquisitions where there is no strategic value and no significant value to investing human time. Good examples are office suppliers, janitorial services, and sometimes even laptops. Yes, replacing laptops across a large office can be in the millions, but laptops against a standard config are commodity. Just do an automated auction [with ceilings and floors] against a set of approved suppliers and let the most aggressive supplier win.

How Do You Identify Tomorrow’s Supply Chain Paupers?

They still use paper today!

This is another entry in our continuing The More Things Change … series that w began last month. Except this week we’re going back five years instead of the ten years we went back last month.

Although I don’t understand how any supply chain focussed business, and a logistics carrier in particular, could still be paper-based. It blows my mind that just five years ago the WT 100, in their recent article on Rounding the Optimization Curve, reports that there are still a significant number of carriers that keep their records on paper. How can you survive in today’s cost-competitive, just-in-time, value-conscious supply management landscape and work on paper?

And, more importantly, if you are a logistics provider or CPG distributor, how can you effectively still keep running on paper when Amazon is investigating drone delivery? Five years later there are *still* carriers and distributors running primarily on paper. And we’re not pranking you either, like South Park pranked your Amazon, Apple, and Google devices. This is a fact!

And while we’re at it, let’s talk about how you can identify the dead men walking of the day after. They use Excel. We’ve known for years that errors in spreadsheets are pandemic. Needless to say that it boggles my mind that Microsoft Excel continues to be the application of choice for supply chain and logistics management around the world. Fidelity lost 2.6 Billion as a result of a spreadsheet error, Fannie Mae made a 1.13 Billion honest mistake, and RedEnvelope lost more than a quarter of their value in a single day after they warned of a fourth-quarter loss due to a budgeting error that resulted in an overestimate of gross margins. How long is it going to be before someone accidentally uses a plus sign instead of a minus sign in a profit formula and forgets to uncap an inventory calculation and instead of ordering 100,000 units of a profitable product, instead orders 1,000,000 units of a product that actually results in significant losses at the target sale price, for which the market demand is weak, ties up all of the organization’s working capital, and essentially bankrupts the company? My guess, with the steadily increasing complexity of S&OP, JIT inventory management models, and supply chains, not much longer. But, maybe after a few companies are brought to their knees from spreadsheet errors, we’ll see the day when Excel is sh!tcanned along with the dinosaurs who still think it has any more use than a HP or TI calculator.

It’s time for anyone still on paper or Excel to wake up and realize we don’t live in Walt Disneyland and that the story of the prince and the pauper is a fairytale. A pauper is not going to become the benefactor of princely riches just by looking like a bigger, richer, company. In today’s uber-connected world, appearances don’t account for much. It’s not long before someone digs deep and uncovers the truth.

There’s a reason why customers are demanding end-to-end visibility of their supply chains, including those of their supply chains logistics’ partners. And a reason customers now expect all of their suppliers and business partners on the supply chain (including logistics providers) to participate in a supply chain network. It’s because they know that the only way they can accurately manage their supply chain is to keep on top of it, that the only way they can build accurate models is with accurate data gathered from partners, and that the best reports they are going to get are going to come from supply chain visibility and planning software plugged into these “networks” (where, in reality, these are “enterprise communities” that allow the necessary collaboration, not “consumer social networks” where you can poke, prod, and shake your buddy for no apparent reason).

In other words, paper is dead, and Excel will be the new paper, and then, someday, it too will be dead. So if you don’t want to be the pauper, move off of these technologies and onto solutions designed for your supply management needs. With a plethora of Best-of-Breed solutions on the market, designed for large and small providers, it’s extremely likely that there’s at least one solution that meets your needs almost exactly with minimal tweaking. If you look hard enough, the doctor would bet that there’s at least three, or will be before you can look twice.

Why Bother Classifying Spend? 3 Ways Spend Analysis Will Improve Your Life … Part II

Today’s guest post is from Brian Seipel, Spend Analysis lead at Source One Management Services focused on helping corporations gain a clear view of their spend data to derive actionable budget optimization strategies.

Yesterday we began our tale of two VARs that have a lot in common. Both serve the same North East region, both offer stellar customer service, and so far the relationship has been good on all sides. Each of your offices comes away satisfied after reviewing their VAR’s track record. But, as we started to discuss yesterday, that’s not all there is to the story. Today we discuss the next two ways spend analytics can change your life … for the better.

Improve Efficiencies

Beyond hard dollar savings, companies stand to save money by building a leaner, more efficient Procurement department. From the benefit described above, we can already see how our total vendor pool will be reduced through consolidation, and fewer vendors to manage means less time devoted to the procurement process. However, we will also learn more about our vendor landscape through the analysis.

Continuing the example above, let’s consider those two VARs a bit more closely. All else equal, we may find out that New York’s VAR offers a vendor-managed inventory program, centralized billing, and an online customer ordering portal. Each of these value-adds will help Procurement be more efficient, even if no hard dollar savings are generated. By properly researching the landscape, we can determine what value-adds are truly important and focus on building up these efficiencies.

Clamp Down on Maverick Spend

So far, we’ve consolidated spend to a single VAR (generating hard dollar savings via negotiated rebates and unit pricing using our newly consolidated spend as leverage) and improved our procurement process (generating soft dollar savings by understanding and implementing best practices).

We haven’t, however, talked about specific items being purchased. As the saying goes, “the devil is in the details,” and the very best supplier relationships can fall prey to maverick spend if employees are left to their own devices.

Consider all of the non-strategic, commodity spend that will pass through our VARs; items like cabling, computer peripherals, office equipment and a whole host of other small purchases are often included in contract pricing lists. But what about an employee who goes off the reservation, and orders off-contract? Your negotiated rates become meaningless. Would the purchase of an off-contract mouse by a single employee that is $5 more expensive break the bank? Likely not – however, this problem can get out of hand quickly if large groups of employees routinely ignore the on-contract equivalents. Analyzing spend and comparing it to negotiated on-contract items allows us to identify the problem and either reign in employee behavior, renegotiate the contract price list, or a combination of both to solve it before it gets out of hand.

Which Camp are you in?

If there’s one thing our tale of two VARs has taught us, it is that “you don’t know what you don’t know.” Neither VAR may look like a poor partner at the outset. However, when you look at the entire picture, room for improvement becomes more obvious (especially if we’re willing to change it up). We simply can’t see that entire picture without performing a spend analysis in the first place.

By performing our spend analysis, we put ourselves in the position of moving between the three-foot and 30,000-foot view quickly, enabling us to look at our spend and supplier relationships from all sides. Only then can we effectively manage our spend.

Thanks, Brian.

Why Bother Classifying Spend? 3 Ways Spend Analysis Will Improve Your Life … Part I

Today’s guest post is from Brian Seipel, Spend Analysis lead at Source One Management Services focused on helping corporations gain a clear view of their spend data to derive actionable budget optimization strategies.

Let’s face it, you and your team have your collective hands full keeping the Procurement trains running each day. Adding a spend analysis initiative on top of everything else being juggled? Well, that may be one ball too many to keep in the air. It seems like an unnecessary added step you simply don’t have time for and, really, what’s the point?

Through years of working with clients to develop and execute strategic sourcing initiatives, I have found there are two camps I can sort organizations into. Which side a client lands on is indicative of how much work lies ahead in terms of helping them truly control spend. Organizations will either be pro spend analysis… or barely spend time on the subject, if any at all.

To be fair, many organizations run a tight ship in terms of managing spend – but there’s still room for improvement for a good number of others. There are some great reasons to make a proper spend analysis a priority. As such, I wanted to take a minute to extol the virtues of this process to show some of the benefits you may be missing out on. See below for my top three reasons a proper spend analysis should be the next initiative you spend some time on.

A Tale of Two VARs

(Value Added Resellers)

First, I’d like to set the stage a bit. Consider the relationship between an organization and its IT hardware/software value-added resellers. In this scenario, we have two such VARs; one servicing the organization’s New York branch, the other servicing Philadelphia.

These two VARs have a lot in common. Both serve the same North East region, both offer stellar customer service, and so far the relationship has been good on all sides. Each office comes away satisfied after reviewing their VAR’s track record. But is that all there is to the story?

Generate More Savings

One of the most apparent (if not THE most apparent) reasons to analyze your spend is the impact such an analysis has on strategic sourcing initiatives. At the most basic level, an organization needs to know several key facts before developing a strategy around cost savings:

  • “How much money are we spending, and who is spending it?”
  • “Who is that money going to?”
  • “When are these transactions happening?”

These seem like simple enough questions, but getting the answers can be tricky. To kick off our VAR example, one great way to save money with such VARs is to leverage your spend volume to negotiate rebate structures and develop reduced unit pricing for all purchases. The more you spend, the bigger the rebate and the greater the incentive for VARs to offer unit price discounts – and these things can add up quickly. Consolidating spend to as few VARs as possible helps to maximize this strategy, and both our VARs service the same region. However, because New York and Philadelphia each use two separate VARs, neither will be able to negotiate as strong a rebate, and we likely won’t make much progress in commanding discounted rates. Each location may have a great relationship with its respective VAR – and Procurement wouldn’t know they were missing out on a savings opportunity until a spend analysis revealed this missing piece.

But this is just one way spend analytics will change your life.

Thanks, Brian.

Finally … A Good Use for Drones!

A recent article on Yahoo! Finance indicated that MIT researchers use drone fleets to track warehouse inventory specifically to help employees find particular items faster.

But the best use is regular inventory checks and fraud prevention. If the warehouse is lined with RFID readers and every inch is covered, then a system can be designed to flag when a palette is dropped at the wrong location, or when a signal expected to be there is not. But what a system can’t do is double check that a RFID chip is actually there. Once the palette has been read at the right location, and the inventory recorded, who’s to say the system will note when the inventory has been moved and used if a refresh is not performed on a regular basis or that
a hack has not been performed that can trick the system into believing the palette is still there when it has been moved.

In other words, the drone can make up for the inefficiencies in the non-mobile system. It can be programmed to traverse the entire warehouse every night and identify the errors in the system, which can immediately be investigated and corrected. While there is no sure way to prevent hacks that can lead to theft, any thefts would be identified much more quickly, which could increase the chance of recovery and, if the theft is for restricted / hazardous materials or technology, allow for responsible reporting that would keep the organization out of lawsuits and the CXOs out of handcuffs.

It’s a good use for drones. And one even the doctor can get behind.