There are two topics this blog always comes back to -- decision optimization and spend analysis, and there's a reason for that. Not only do they both reduce costs more on average than any other technology this blog covers (an average of 12% in the first case and 11% in the second case), but they also improve the quality of decisions, often substantially.

A recent blog post over on the Harvard Business Review on how to chart a course in strategy and innovation conflicts did a great job of putting this in perspective. The article, which discussed "east coast" strategy vs. "west coast" design thinking and the "analysis vs. action" schism did a great job of not only pointing out how the best approaches not only come from the intersection, but from the insights that result when a quick and timely analysis can be performed. For example, sometimes you just need to run a quick test to find out if a new pricing strategy will work or if a proposed re-organization is likely to achieve the intended results.

If you have a real analysis solution that allows you to quickly import, cube, slice, and dice your data any way you need it, you can quickly calculate the effects of a new pricing strategy to make an informed decision. And you can quickly analyze how spending would break down across a new organizational structure. A real analysis can help you analyze strategy and spot innovation better, faster, and more cost effectively.

Mostly Harmless, Part X

Previous Post

A (sales) invoice is a commercial document issued by a seller to a buyer that indicates the products, quantities, and prices for products and services the seller has provided to the buyer. An invoice indicates that the buyer must pay the seller according to payment terms. While the purchase order is the most important document to the buyer, as it outlines what the buyer is willing to buy (and at what price), an invoice is the most important document to the seller, as it represents money due to the supplier for goods and services rendered.

An invoice is generally the result of a purchase order, but the relationship is not necessarily one-to-one. A supplier might fulfill an order with multiple shipments (especially if some items are not immediately available) and invoice after each shipment, indicating that there can be many invoices corresponding to one purchase order. In addition, a supplier might fulfill multiple purchase orders at once, if the orders were small (and the supplier is responsible for all shipping charges over an agreed amount), indicating that there can be many purchase orders corresponding to one invoice.

Like a purchase order, an invoice must contain a significant amount of information, including items delivered, associated SKUs, billing rates, adjusted rates, reasons for adjustments, corresponding purchase order(s), corresponding goods receipt(s) (if available), invoice date, delivery dates, unique identifiers, taxes, tax codes (state vs. federal vs. VAT etc.), descriptions, billing address, payment address, contacts (for disputes), and payment terms.

In addition, it must contain any information required for m-way matching, to insure that only the items that were ordered and delivered are paid for, and only at contracted rates, and adjusted rate calculations if line-item or global discounts apply (because a volume threshold was reached, because the buyer opted to pay early to take advantage of an early payment discount, or because the supplier agreed to a discount to resolve a dispute).

Furthermore, just like the goods receipt must be representable in a universal (e.g. XML) format that can be accepted by all of the systems that require it, so must the invoice, as the buyer may need to return the invoice to the supplier after adjustments (subject to contract terms and/or agreements that resulted from a dispute resolution) are made.

Thus, when a buyer is evaluating an e-Procurement system, extra attention must be paid to the invoicing capability as it not only has to support m-way matching (with contracts, purchase orders, and goods receipts), but support revisions and automated communications with the supplier. Some of these topics will be addressed in more detail in the next post.

Next Post: Invoices, Part I

Share This on Linked In

Industry Week recently ran a great article on how Culture Counts and how maintenance is deeply involved in any true lean initiative. Fundamentally, lean is about finding and removing waste -- and who knows more about waste than anyone else in the organization? The people who watch it go down the drain. The people who watch it get hauled away. The people who shovel it into the incinerator. In essence, the maintenance department.

A true lean initiative never reduces headcount in the maintenance department. (In fact, it might actually increase headcount in maintenance.) A true lean initiative involves maintenance from day one and gets their insight on where the most waste is produced and what methods could be used to reduce or recycle it. In true lean initiatives, the maintenance department is a strategic player who not only finds a way to reduce waste, and associated costs, but to profit off of it. Just like food waste can often be recycled into animal feed, industrial waste can often be recycled into raw materials usable in another product or industry. (And if maintenance can identify a unique recycling process that can produce secondary products that can be resold, the size of the maintenance department might actually increase as you add people to support a profitable waste recovery and recycling initiative.) And that's why it's not lean if you don't engage maintenance, as you could miss the strategic opportunities without their help.

Share This on Linked In

When we introduced you to B2B Connex last December, we told you about their e-Document Management Solution for Small & Mid-Size Manufacturers that is a great fit for all types of small and mid-size manufacturing organizations that need simple e-Sourcing and e-Procurement functionality at a low price tag (which starts as low as $30,000 / year, plus 20% annual maintenance for a small operation, and isn't much more than $100,000 a year for a mid-sized operation).

Designed to fill the niche in the small and smaller mid-sized market left by the big end-to-end e-Sourcing and e-Procurement suite vendors whose big footprint solutions come with an equally big price tag, the B2B Connex solution allows for easy management of a slew of e-Documents -- including RFQs, purchase orders, kanban orders, advance shipment notices (ASNs), payment inquiries, invoices, and sales orders, which enables an organization to efficiently conduct its transactional back-office procurement operations (especially since it integrates with a dozen ERP/MRP systems with minimal or no configuration).

Since our introduction to B2B Connex last year, they have been quite busy upgrading their platform and adding new functionality. They've improved their integrated scorecard capability, added more customer branding capability (which allows a customer to define their own logos, colours, fonts, etc), streamlined Excel integration for data import and export, and launched a new customer portal that not only streamlines the transmission of purchase orders, outbound RFQs, ASNs, and inbound shipment inquiries, but also contains a new shopping cart application that runs on a catalog that is customized for the customer.

The new portal application allows the manufacturer to tailor a catalog for each customer. For each customer, the manufacturer can specify what items are visible, what the price is for that customer (based on markups, contracts, or discounts), and any restrictions on purchase (minimums or maximums, manufacturing plants & shipping locations, etc.). Since the customer catalog is implemented as a view on the manufacturer's full catalog, only customer specific information has to be defined for each product. It also contains embedded search functionality which makes it easy for the buyer to find what they are looking for and the manufacturer to find what products they want to make visible to the customer.

The cart works like your standard one-click e-Commerce cart, but instead of asking for payment information on submission of an order, it generates a purchase order that is automatically incorporated into the manufacturers back-office system and forwarded to the appropriate warehouse(s). Billing and shipping address, billing and shipping contact, invoice and ASN recipient, and (default) shipment method are all automatically filled in based on the customer representative's profile, but can be manually overridden as required. Once the order is manually reviewed and accepted, a purchase order acknowledgement is automatically sent to the buyer. Once it is ready to ship, the buyer receives an ASN, which the warehouse personnel can generate in a single click (as it is automatically generated from the PO data and the shipping clerk's profile). Once the order ships, an AR rep. can automatically generate and send the invoice (which also flows through the customer portal) in a single click (as all of the information can be pulled from the ASN and the WMS [Warehouse Management System]). The entire system has been designed to streamline the tactical parts of the purchasing process and eliminate duplicate data entry [which is the most common cause of errors and lost time in the tactical purchasing process].

The platform is multi-lingual and currently supports five languages: English, French, German, Italian, and Spanish. It's also compliant with EDI standards and allows the customers to define their own menus, which can be used to include information about their own specific processes, requirements, and specifications. And the next major release, expected sometime this fall, is going to have scorecard (based) correction action reporting (SCAR) capability, which will be available through the portal and integrated with the scorecard capabilities.

At this point, with respect to the basic process they are trying to automate, about the only noticeable weakness is the lack of a bid analysis capability to complement their RFQ module, which would round out their e-Negotiation capabilities and enable them to provide a solid sourcing offering in addition to their solid purchasing offering for small and mid-sized manufacturers who don't need sophisticated e-Sourcing platforms. But it looks like they won't have this weakness much longer, as they indicated that as soon as SCAR is in general release, bid analysis is the next project in the queue and they plan to have a first release in the first half of next year. All-in-all, B2B Connex offers a very good solution for the price tag.

Share This on Linked In

A recent Vision Statement in the Harvard Business Review on why a business should Behold the Extreme Consumers, the 5% of customers so infatuated with the brand that they spend more than 10% of their lifetime income on it that many brand managers fear, had some impressive statistics:

• 100% personally identify with and say they gain meaning from a favourite brand
• 98% have defended the brand against perceived attacks in the media or from other firms or individuals
• 96% describe their favourite brand as "part of the family"
• 94% display their extreme behaviour in relation to just one brand
• 94% agree strong that "more often than not, buying cheap is expensive"
• 94% never even consider buying a brand that rivals their favorite

Which leads one to ask, where the extreme supply chain supporters? Imagine how much more respected (and successful) the supply management organization would be if it could find the 5% of company employees in other business units who:

• personally identified with supply management and gained meaning from its involvement
• defended supply management against unjust attacks, no matter where they came from
• described supply management as "part of the team"
• displayed extreme support for supply management and supply management alone
• agreed that any buying decision was multi-faceted and should be left to the pros
• never even considered making a major purchase without the involvement of supply management

What a wonderful world it would be.

Share This on Linked In

Mostly Harmless, Part IX

Previous Post

In the last post, the goods receipt was defined and some of the complexity around the requirements thereof were discussed. This post will address some of the challenges associated with the goods receipt, some of the associated best practices, and some of the benefits that could be expected from an appropriate e-Procurement solution that effectively handled goods receipts.

Common Challenges

• m-Way Matching
  The goods receipt needs to be matched back to the appropriate purchase orders and/or contracts and forward to the appropriate invoices. This can be very difficult without a good system.
• Issue Tracking & Dispute Initiation
  As soon as a potential problem is detected, it has to be documented and reported as a supplier's liability is often greatly minimized, if not released entirely, if an issue is not reported in a timely fashion.
• Inventory Management
  If the goods are not appropriately logged and tracked, they could be lost in the system. Or, even worse, the inventory management system might think there is not enough stock when there is too much and automatically reorder more, causing inventory management nightmares (as well as huge write-offs down the line).

Best Practices

• Line-Item Matching
  Since a single shipment can relate to multiple purchase orders, contracts, and / or invoices, matching should be done at the line-item level of the goods receipt.
• Dispute Management Integration
  The goods receipt should be automatically sent to the dispute management system if any issues are noted and the e-Procurement system should be capable of importing any modifications output by the dispute management system, as a result of an agreement.
• Inventory Management Integration
  The goods receipt should be automatically sent to the inventory management system, and the inventory management system should send back an error message if any of the SKUs are unrecognized (which would be captured by the e-Procurement system).

Potential Benefits

• Faster Dispute Resolution
  If issues are immediately tracked and reported from the time the goods are received and the goods receipt issued, a formal dispute can be initiated faster -- and solved faster since accurate information will be immediately available.
• Faster Payment
  The issuance of a goods receipt that is free of disputes can trigger payment approval for an invoice (that is issue free), which is then more likely to be paid on time, or early if a(n attractive) discount is offered.
• Significant Savings
  First of all, because no issue goes untracked, losses from damaged or spoiled merchandise are considerably reduced. Secondly, because shipments are automatically tracked and reconciled and because disputes are resolved faster, the buyer is more likely to be able to take advantage of any early payment discounts that may be offered to save even more.

Once the goods receipt is issued, an invoice can be expected in short order (if it is not issued upon shipment). This is the subject of the next post.

Next Post: Invoices, Part I

Share This on Linked In

The recent report on Supply Chain Strategy in the Board Room by the Cranfield School of Management and Solving Efeso listed the top 10 functional drivers of supply chain strategy at the 181 companies surveyed in the report. While all are valid considerations, the reality is that there should be only one driver of corporate supply chain strategy, because there's a big difference between a consideration and a driver.

Customer service, distribution, and planning are all valid considerations, but none should drive the supply chain strategy. The supply chain strategy should be driven by the corporate strategy and corporate strategy alone. It does not matter what level of service the supply chain supports, how efficient or cost effective the distribution is, or how simplified planning becomes if the supply chain strategy is not in line with the corporate strategy. If the corporate strategy is to be the lowest cost provider, then customer service (which can be costly) is not at the top of the list -- cost and availability are. If the strategy is immediate availability, quick distribution is a must, even if air shipments are five times as expensive as ocean freight. And if the business is subject to the whims of the market (like fashion), plans are short term.

The reality is that the customer service strategy, distribution strategy, customer proposition, production processes, planning, purchasing strategy, product design processes, returns management, and the disposal strategy should all be determined from the corporate strategy, not the other way around ... because if the supply chain is not in synch with the rest of the business, it's full value proposition will never be realized.

Share This on Linked In

When we introduced you to Ecovadis back in 2008, we pointed out how this European start-up was building a sustainability solution for evaluating and monitoring suppliers in a manner that would help companies meet and exceed the emerging green and sustainability regulatory requirements. Fully compliant with GRI G3 (Global Reporting Initiative) standards and the ISO 26000 CSR Guidance with their solution that tracks metrics across 23 green/sustainable criteria for the 150 procurement categories they support, it provides a very extensive CSR scoring mechanism across environmental, social, ethical, and supply chain issues.

Back in 2008, all they had on the technology side was the core supplier assessment module for the buyer -- which was built around a "dashboard" that provided a snapshot rating of a supplier on each of the key categories with drill down ability into the scorecards for each rating, cross-industry benchmarking, and integrated news feeds (with human reviewed articles, relevant legislation, etc.), and a supplier portal -- which allowed the supplier to log in, answer questions, provide relevant data, and see their scorecard. On the services side, they had the ability to arrange and verify audits on your behalf, scan and classify relevant documents automatically, and support suppliers in five languages even though the platform only supported English and French. And when SI last covered them, they had only three public customers.

Flash-forward to 2010, and they have made considerable progress on the technology, services, and customer front. On the technology front, they have made significant updates to the core supplier assessment platform (the newest of which are in beta testing now and will be in general release at the end of the quarter / start of next quarter), released an audit module, released a new risk analysis module, and improved the multi-lingual capabilities of the platform. On the services side, their partnership with SGS, the largest certification company with over 1500 auditors certified in CSR auditing, allows them to do 2^nd party audits on your behalf on your suppliers anywhere in the world and they have added a few more languages to their back office. On the customer front, they have increased their customer base tenfold, with 30 public customers that include 10 companies in the Global 500 who are in the top 10 in their vertical (including the largest construction company, the second and third largest insurance companies, the third largest building materials company and the third largest industrial manufacturer), with a few more big names to be announced soon. These customers represent over 2,500 users that collectively track CSR data on over 4,000 companies across 40,000 sites in 80 different countries with a 94% adoption rate among suppliers.

The upgrades to the core supplier assessment module include an improved UI, feedback capability within scorecards, guidance for buyers and suppliers on how to improve ratings and the most critical weaknesses that need to be tackled, and a new corrective action plan capability for suppliers to allow them to propose corrective action plans and collaborate with buyers on their design and implementation. The guidance highlights key issues across each of the 23 categories, primary weaknesses, (upcoming) regulations and initiatives of import, policy recommendations, and proposed actions.

The Risk Analysis module, designed to allow all users to perform a quick check of the potential CSR risks associated with a specific supplier profile, and identify those suppliers which should be subject to a formal assessment or audit, is pretty simple, but it's a great start considering that most organizations don't have any tools at all. (Plus, you can't automate risk analysis -- this will always require human interaction. Software is not intelligent and can't identify unknown threats -- only humans can.) Basically, the user fills out a (proposed) usage profile (direct or indirect, country, turnover, categories, branding, influence, etc.) which can be uploaded from an Excel file, the system extracts the CSR profile of the supplier and all of the related data, and an automated analysis engine determines the primary potential risks, the probable degree of supplier CSR risk relative to buyer CSR exposure on a nine-by-nine grid (which goes from low to high as you progress from the lower left [green] zone to the upper right [red] zone), and the action you should take (which is either no action, assessment, or full audit). While not perfect, it will quickly identify the majority of the company's riskiest suppliers, which is where the company should start its risk management efforts.

The real value in their solution to procurement is in the massive cost savings it enables. CSR is important, but we all know that North America tends to follow the mantra of Gordon Gekko and that, unfortunately, when times get tough, the mighty dollar trumps everything else. Companies like to feel good, but they like to profit more. These days, profits come not from sales (which are sluggish), but from savings that come from cost reductions and risk avoidance. Ecovadis' platform assists you on both accounts. Without the platform, buyers are wasting a lot of time and money chasing suppliers, who are fatigued from answering the same damn survey over and over again, for data, analyzing that data, and shelling out for expensive benchmarks from high priced consultants to put that data into relative light -- data that might be suspect to begin with. Similarly, suppliers are wasting time cutting and pasting data instead of providing the buyer with the products and services the buyer needs, which drives up costs for both parties, and not even getting any decent feedback in return that they could use to improve their operations. But with the centralized sustainability marketplace Ecovadis provides, suppliers only have to answer a question once, they only have to suffer a time-consuming and costly audit once, and they get a scorecard which not only rates their performance, but benchmarks them against their peers and identifies areas for improvement. Buyers get up-to-date reliable data and actionable scorecards which they can use to leverage suppliers and make better decisions. Everyone wins. Plus, if the buyer has a SPM tool (like that offered by Ariba, Aravo, Hiperos, SAP, etc.), Ecovadis' can plug their platform into the tool and greatly simplify the CSR SIM that the buyer would likely have to do manually.

Share This on Linked In

You need to source some more cocoa for your chocolate factories to keep production moving (and the oompa loompas working). In years past, you'd just hold an auction and cut a contract with the lowest cost bidder, but you can't do that now that you're a socially responsible buyer. You can't buy from some sellers on the Ivory Coast that you know are using child labor, you can't buy from further away than necessary as long hauls greatly increase your carbon footprint, and you can't buy inferior products for your luxury chocolate production lines. You can buy some inferior products for your mass economy goods, provided they are blended with higher quality goods, but only so much. You can ship further if the cost is low enough that you can buy carbon credits. And you can source a portion of your award from a select handful of Ivory Coast suppliers who are making an active effort to approve their socially responsible operations.

It's a complicated decision as you have to balance cost vs. carbon vs. quality vs. brand value. In fact, the only way to truly make the best decision is to use a (strategic sourcing) decision optimization solution that allows for multi-criteria multi-variate optimization that allows a buyer to determine the cost and benefits of various solutions with respect to each objective. In addition, it's the only way a buyer can truly examine the effect of different weightings of the various criteria under consideration.

While many of the SSDO (strategic sourcing decision optimization) platforms do not yet support this capability, you can be sure that most of tomorrow's platforms will. To find out what other capabilities are forthcoming in the world of decision optimization, visit BravoSolution's website, fill out a short 8-field registration form, and receive your free, exclusive, copy of The Future of Optimization, a new Sourcing Innovation white-paper with groundbreaking insight on eight directions that strategic sourcing decision optimization is likely to take in the decade ahead.

Or, fill out the quick-request form below:

Mostly Harmless, Part VIII

Previous Post

A goods receipt is a written (or electronic) acknowledgement by a buyer that a specified set of products or services was received by the buyer in acceptable conditions. It's primarily used for the receipt of goods by a buyer's warehouse or distribution network. A goods receipt tells the supplier that the buyer has accepted the goods and that the supplier can expect to be paid subject to the terms of the associated purchase order(s) or contract(s).

A goods receipt is so simple in principle that one might believe that it hardly warrants its own post. However, a goods receipt is not so cut-and-dry in practice. There are many reasons for this, including:

• The goods receipt has to be meaningful to the supplier.
  This means that it has to contain the product codes, or SKUs, used by the supplier, indicate the quantities, and reference the purchase order(s) given to the supplier.
• The goods receipt has to be meaningful to the buyer.
  This means that it has to contain the product codes, or SKUs, used by the buyer for purchasing. It needs to reference the appropriate purchase order(s) and/or contract(s) and it needs to provide an ability to reference a forthcoming invoice.
• The goods receipt has to be meaningful to inventory management.
  The goods receipt also has to contain the product codes, or SKUs, used in inventory and warehouse management, if they differ from the purchasing codes, and any auxiliary information required by inventory management and warehousing for storage and distribution.
• The goods receipt has to account for irregularities that could form the basis of disputes.
  The supplier might require a receipt as soon as goods are delivered, but before they can be adequately inspected. Upon an initial inspection of a damaged box, it may or may not be possible to determine whether or not any, some, or all of the contained products are damaged. How can this information be captured so that there is a foundation for a dispute if damage is found upon future inspection?
• The goods receipt has to be acceptable to multiple systems.
  Chances are the supplier uses one system for receiving goods receipts while Purchasing uses another for cutting purchase orders while inventory management uses yet another for managing inventory.

As a result, the goods receipt must be expressible in at least one universal format that is capable of supporting multiple product codes or SKUs, multiple references to related buyer and supplier documents, and multiple instances of such documents, as a supplier could ship goods relating to multiple purchase orders in a single shipment. (Also, a single purchase order could be related to many goods receipts if different goods on a large BOM are shipped in different shipments.) As a result, the requirements for the goods receipt cannot be overlooked in the selection of an e-Procurement system.

Next Post: Goods Receipts, Part II

Share This on Linked In