Spend Matters Premium Content:
Sourcing

Getting the Most from Sourcing Optimization (Part 1): Lessons From Leaders [PRO]

Global Risk Management Solutions (GRMS)

The combination of Trade Extensions and Coupa may seem a curious one for those unfamiliar with either organization, and may even raise questions for those who know both. As Trade Extensions’ recent customer event showed (see our live coverage here, here and here), the sourcing optimization specialist and its customers continue to push the limits of what is possible with e-sourcing. In contrast, procurement organizations that gravitate to Coupa — even highly sophisticated ones — tend to do so because they want to avoid complexity for their users and make the transactional buying process as simple as possible, all the while guiding users to make the best decisions for the business.

This two-part PRO research note provides additional perspective from Trade Extensions’ customer event on how this spectrum of complexity and simplicity may not be incongruous in the future; rather, sourcing optimization could serve as a better mousetrap to identify complexity, deconstruct it and ultimately redefine procurement’s role in the business by changing how the function is conceived. But before that can happen, there’s a more important topic address: the fact that most firms using Trade Extensions (and other sourcing optimization technologies) have only begun to scratch the surface of embracing complexity — let alone containing, controlling, distilling and simplifying it.

Part 1 of this series explores how an organization can get the most from sourcing optimization once it has signed up for it, which is easier said than done. We explore three areas: selecting the right users and training them effectively to use optimization, leveraging a center of excellence (CoE) to scale efforts and thinking big (i.e., beyond category-driven events alone). Spend Matters would like to thank all of the conference attendees and Trade Extensions for sharing these ideas.

Rethinking and Reclaiming “Tail Spend”: 6 Key Variables to Consider [Plus +]

AnyData Solutions

The idea of “tail spend” doesn’t seem very complicated at first.

Run a Pareto analysis on your spend categories and suppliers to make a cutoff at, say, the 80% that represent only 20% of your spend. Your numbers will, of course, vary, but the idea is to find a way to better manage such “nuisance” low-dollar spend that doesn’t detract from your efficiency, or worse yet, from spending time managing the truly strategic spend categories more deeply.

You might think of this as the spend in the lower-left quadrant of the famous Kraljic 2x2 matrix, which describes a strategy of “purchasing management” to manage non-critical, abundant supply that can be sourced locally in a de-centralized manner for maximum efficiency. And, maybe, if you manage this nuisance spend properly, you can even extract some value from it (e.g., a “quick source” process to gain some speedy spend savings).

Sounds straightforward, right?

Well, it’s not, and I have purposefully led you astray to prove a point.

The problem is that I never really defined tail spend in the first place – and if you can’t define it or see/measure it, you can’t manage it. And herein lies the rub (and the opportunity):

Tail spend could better be described as “nuisance spend” or “tactical spend,” and is comprised of many sub-segments — not just one or two.

Let’s return to our examples above. Segmenting on a spend-per-supplier basis, like in our Pareto diagram, is by no means perfect. What about low-spend, sole-source suppliers tied to large revenue or profit? OK, well, you might then refer to the Krajlic matrix as the solution. It’s better, because it helps profile the categories into complexity vs. impact (or risk vs. reward if you view it as such), but again, these are only two variables, and do not factor in any others.

Which ones? Let’s list six of them and ask whether you’d consider the resulting spend segments as ‘tail spend,’ or at least ‘nuisance spend.'

Top 10 Ways to Radically Expand Category Management Value Creation [Plus +]

category management

In the never-ending quest to deliver more value, procurement organizations are trying to squeeze more savings and innovation out of spend categories. But, eventually the well starts to run dry, and when that happens, you need to either get more out of that well (fracking for spend savings, perhaps?), dig a deeper well, find another place to dig, or find another way to get the water.

My point? To improve category management, which we sometimes affectionately refer to as CatMan, you sometimes have to expand it or blow it up completely. Here are some ideas that I’ve seen work elsewhere that can hopefully give you some inspiration and raise your category management game.

Strategic Sourcing and E-Sourcing: Level 1 [Plus +]

Strategic sourcing does not just involve a five- or seven-step flowchart. Nor is it just a “leave behind” by consultants once they’ve helped your organization to identify savings. Rather, strategic sourcing is a process that maximizes the value of each purchase made by a company — at least in theory! And it’s one that, in our opinion, requires the support of a solid technology solution that in turn must support each step of the process.

Strategic sourcing does not come in a one flavor. In fact, in the introduction to this series, we suggested there are six different approaches to strategic sourcing. Starting with the foundation (Level 1) today, this multi-part research brief will delve into the six approaches to strategic sourcing and the requirements, technologies and checklists required to pursue sourcing on the right foot.

Graphically, a Level 1 sourcing platform may look something like this: As one can see from the above diagram, there are four primary requirements for a solution to support e-negotiation. Such a product may contain more capabilities, but it will generally contain at least these four (although very basic platforms, especially those embedded in suite-driven platforms, may not support the full extent of reverse auction capability). In this article, we will discuss each of these four core requirements and some of the key features that define them.

Ready, set, source!

Using DMAIC 2.0 to Blow Up the N-step Procurement Process [Plus +]

An n-step chevron process is a siloed procurement-centered sourcing methodology geared towards supplier rationalization. It’s a fine start for procurement hitting cost savings goals, but it’s not a great way to align to the broader organization as procurement evolves. So, we’re proposing DMAIC as an emerging, superior approach, but it’s far beyond the DMAIC that you usually think of. The n-step sourcing process has had a good run, but let’s not try to make it do unholy things. Read on to see how other companies have used DMAIC.

Deloitte’s Global Sourcing Insights (GSI) — From Best Shoring to Best Sourcing [PRO]

In Part 1 of this analysis, we discussed the need for a truly strategic supply chain sourcing platform built on a supply network design model rather than just the typical BOM-based sourcing workflows and low-level commodity sourcing efforts that use “empty” e-RFX tools. We detailed the full requirements for such a supply network-based platform in a four-part series (see related articles below), but in Part 4, one of the trends highlighted included a pivot from such empty apps to content-enabled apps increasingly provided by large service providers that use cloud-based analytics and intelligence platforms as a way to deliver continuous insight and value. In that piece, we highlighted Deloitte’s Global Sourcing Insights (GSI) solution as a prime example:

GSI is a strategic sourcing and extended supply network design workbench that allows clients to explore high-level sourcing strategies by uploading their supply network configuration and then performing what-if and predictive scenarios in the tool that is pre-integrated with regional and country-specific cost and risk data. It is truly the harbinger of things to come with consulting organizations that need to survive and thrive by productizing their IP.

Many organizations strive to perform “best shoring” to optimally determine what regions to source from. Deloitte’s GSI solution is the only solution I have ever seen that is so well suited to best shoring, especially in a retail-oriented supply chain. It not only helps optimize the regions that you shore (source) from but also drives down to the cost elements and sub-regions that help you tailor their supplier-level sourcing execution activities that perform cost, risk and capability discovery and then subsequent “risk-adjusted cost” analysis against a “benchmark supply chain” of your peers (and if you load up your own manufacturing plants as suppliers, you can also do make vs. buy analysis).

Phew, that’s a mouthful!

Since the platform is pre-loaded with all sorts of external content and benchmarking data on costs, spend and risk, you can test whether the supply chain that you’ve built over the years still holds untapped opportunities. It basically is like a risk-adjusted should-cost analysis in a box. That’s why it’s more of a “best sourcing” tool than a simple “best shoring” analysis. We spend a lot of time go through it and the bottom line is that it’s pretty badass — and that it has some implications far beyond the consulting ecosystem and how it’ll impact firms that sell app suites, niche apps, analytics, market intelligence (apps/services), “networks”, BPO and the like.

In this Spend Matters PRO analysis, we’ll look under the covers at an offering we feel is on the vanguard of an emerging solution model in sourcing and supply chain. If you are a practitioner who subscribes to Spend Matters Plus and are interested in this content, please drop us a line and we’ll send you a copy.

Buyer Best Practices: Write Better RFPs (Part 4) [Plus +]

RFP

In our first article, we noted that sometimes good RFP responses are hard to come by. We noted that there are a variety of reasons why this is the case and tried to give some insights on what makes a good RFP. Then, in Part 2 of this series, we defined some critical requirements of a good RFP in an effort to help you write better RFPs. Finally, in Part 3, we discussed how to understand and incorporate the supplier’s perspective into your RFP so that you can be a “prospective customer of choice” by presenting an “RFP of choice” that makes your business even more attractive to the prospective supplier. To do that, let’s dive into some details on the best practices needed for creating one.

Requirements: Write Better RFPs (Part 2) [Plus +]

RFP

In our last article we noted that too often good RFP responses are hard to come by. If you want a good response, your odds will greatly improve if you have a good RFP. We also gave you some hints as to what makes a good RFP. In this article we define some more requirements of a good RFP to help you write better RFPs.

Write Better RFPs: Intro & Issues (Part 1) [Plus +]

RFP

As a buyer, you send out dozens, if not hundreds, of RFPs every year, and whether it is for a simple operating system upgrade for the local office or a complex global print project that involves 100 different countries and nine digits of spend, you need good responses to make a good decision and a good award. But sometimes good responses are hard to come by. Why? Sometimes the market is against you because the value of your dollar is falling, demand exceeds supply or your competition has launched a smear campaign against your brand. Sometimes the best suppliers have no capacity and you are relegated to picking the best option from the alternate backup providers. And sometimes your RFP just isn’t very good. You heard us. Sometimes your RFP isn’t very good. And if your RFP isn’t very good, how can you possibly expect to get good responses? Unless you tell them, the suppliers’ personnel don’t know your business, your challenges, your goals, your needs and what makes a good response and what doesn’t. Unless you reach out to them, they don’t even know how serious you are about considering any proposal they put forward. How do they know you aren’t just using them as “RFP fodder” and merely collecting their bids to use against your incumbent that you plan to award to anyway?

Traditional Platforms are not Enough: Direct Materials Sourcing (Part 1) [Plus +]

Direct materials sourcing refers to the sourcing of custom manufactured goods, and of course, raw materials from first tier suppliers that meet the particular needs of the buying organization. It is distinct from the sourcing of commodity goods and services in that the nature of the requirements are considerably more detailed than the requirements for consumables or low-value goods. If all you are buying is toner cartridges for the laser printers, cleaning suppliers for maintenance or commodity packaged goods to round out the low end of a product line, any compatible toner cartridge, cleaning detergent or aftermarket good will cut the mustard. But if the organization is buying components for a high-end laptop, looking for custom molded manifolds or building engines, the goods have to be precise. Sourcing these goods is considerably more complex than sourcing toner cartridges and detergents.

The Myth of the Monolithic Sourcing Suite: 5 Different Types of E-Sourcing Solutions [PRO]

VMS

Even though it will annoy a lot of vendors, I’m going to say it: Source-to-pay (S2P) suites may be here to stay, but top performing procurement organizations continue to select and use multiple sourcing technologies for different purposes — and they will also pay a premium for specific needs. This Spend Matters PRO brief breaks down the different categories of e-sourcing tools that companies are buying, lists specific vendors in each category, provides pricing ranges for various types of solutions and makes recommendations on how best to use different solution types — and where.

Webinar Oct. 22: Turbocharged Category Management for Transcendent Value

category management

Webinar Thursday continues in October as we present Supercharging Category Management: Free Yourself from Siloed Sourcing to Unlock Breakthrough Value on Oct. 22, at 9 a.m. CDT. This is the concluding event on supercharging category management, following a wildly successful e-book and preview webinar held last month. From this webinar, you will learn case studies, technology support examples, specific industries and verticals, as well as participate in a closing Q&A. Register today!