The Mass Customization of Procurement – and Mass Personalization of Procurement Systems
This post is based on a webinar we're presenting this Wednesday from 12-1pm Central:
“Mass customization” is basically the ability of some type of process or system to appear highly personalized to a customer (think custom-tailored suit), while also delivering the efficiencies and economies of scale (think Model T Ford). In the physical supply chain, it basically allows a firm to offer configure-to-order products and services in a way that appears more made-to-order or even engineer-to-order. The concept of postponement is a related concept that is used to postpone as far as possible the adding of product value until true customer demand/preferences are known. There are a variety of technical aspects to mass customization that I won’t get into here, but it basically involves designing the product and value chain processes in a segmented and parameter-driven way (where parameters are the customer attributes and preferences) that specifies how the supply chain will behave. It also ensures the “value engineering” of the process/system in order to eliminate waste by eliminating everything that adds no value to the customer.
Mass customization not only affects direct procurement in terms of how procurement works with suppliers to accommodate such a flexible type of supply chain model, but it also has an impact on the procurement function internally. One way to look at a function is as a collection of processes that should be mass customized, or alternatively said, “personalized” to its internal stakeholders. I will write a separate PRO post on this topic later, but there are many ways that procurement can tailor its processes without sacrificing scale. The “industrialization” of procurement processes is similar to the effect of flexible manufacturing systems in the supply chain many years ago. Such systems allow smaller collections of multi-purpose resources (i.e., flexible tooling and cross-trained workers) to run multiple sets of processes across those common resources in an increasingly wide variety of configured products being offered to the customer.
So, if we think of procurement as an industrialized white-collar factory, we can think of procurement IT systems as the machine tools. The idea of big 6-axis programmable machine centers is a good analogy to ERP systems where you have a fair degree of configuration within a common code base, but there is a fair degree of investment and ongoing programming and maintenance. But it only goes so far, and even manufacturing is getting more distributed and democratized through trends like the DIY movement and additive manufacturing (which are basically forms of localization). Within procurement, as it tries to tailor its value chain to diverse stakeholders, it needs to embrace these concepts across many dimensions, but certainly in the IT systems. The explosion of telemetry, big data, and analytics is making such deep personalization a commonplace capability as frighteningly detailed consumer offers are being served up to our smartphones and Web browsers. Yet, having some level of personalization and intuitiveness from a systems standpoint would certainly be welcome in the B2B world and in eProcurement.
Now, you may notice that I am now using the word “personalization,” whereas I said “mass customization” before. In the IT world, personalization is different than traditional customization. Customization tends to involve modifying source code and hampering the value of easily upgraded SaaS systems. But, the root cause of many, if not most, of these customizations is due to the lack of configurability and personalization of the vanilla packaged software. Executives love to tout vanilla, but competitive advantage is created through the “mix-ins.” Many customers appreciate and will pay for such customization. For example, Mini offers more than 10 million customization combinations for its Mini Coopers, and I can guarantee you that they are not bleeding money for such consumer choice. In the enterprise application market, such personalization capabilities allow you to appear custom, yet remain under a single code base. It is simply good design. Ikea’s pictogram assembly instructions not only allow just one set of directions (like most firms do in 10 languages and tiny font), but also do away with written language complexity entirely.
So, what does mass personalization mean now from an eProcurement standpoint? Well, it certainly enhances the basics in terms of multi-lingual, multi-currency, multi-business-unit (where data and business logic is tied to the locations and business entities in which you operate). But it also does more – much more. The system basically knows who you are, where you are, what your role(s) is, what you are trying to do, what data you are acting on, what device you are using, and other such parameters. And for procurement, there is also the ability to understand the nature of the spend category and supplier/item that you are interacting with (and the business rules derived from various internal/external compliance regimes that are in force for such items) in order to tailor the sourcing processes, the P2P processes, and the actual user interface being used. We are far beyond the days of configurability, meaning the ability to show different fields on a form and tailor the cursor navigation.
Mass personalization also means some fundamental changes in the systems architecture underneath. As a simple example, take SaaS vs. on-premise. A true SaaS architecture is not just technical criteria for mass scalability / “elasticity” for an n-tier architecture, but also common deep business logic that acts upon the conditions above (e.g., it doesn’t just assume that you work for a single enterprise that is aligned on a one-to-one basis to the on-premise software code that you purchase). But this is scratching the surface. Not only will the business logic become more and more tailored, but so will even fundamental issues on where the data is stored (which requires a private/hybrid cloud approach). Clearly, this is having a big impact on the design of large incumbent application suites that need to be rewritten for the cloud to support these requirements that are not just nice-to-have usability requirements.
So if you want to dive into some of the aspects of how procurement systems are becoming mass customized, or should I say, mass personalized, then please join me and Ivalua on a webcast that we’re doing this Wednesday. Registration is here. I’m not sure what exactly they will present with me as I go through the promise of procurement systems personalization, but from what I've seen of their stuff to date, it should be very interesting for someone who has not dug into this area deeply before. We hope to see you there!
Wednesday, April 16, 2014