I am off to AMR’s sold out Supply Chain Executive Conference in Phoenix. Being that it’s my first research firm event as an attendee, I’m certain it will be a surreal experience. I look forward to reporting on my banterings with fellow Boston College alum, the always entertaining Bruce Richardson. I am also excited to hear former President Clinton speak on his new passion — humanitarianism — as well as the role of supply chain in today’s global environment. (I also hope to dine on some authentic Mexican cuisine.)

Few people realize Clinton’s contribution to procurement transformation. I was fortunate enough to be present in the Rose Garden when Clinton signed the Federal Acquisition Streamlining Act into law back in 1994. It wasn’t a silver bullet, but it set forth a trend to bring commercial supply management and automation principles into antiquated and cumbersome federal rules. (Coincidentally, it was Clinton that appointed Professor Steve Kelman to head the Office of Federal Procurement Policy in the early 1990s. The soon-to-be-retired Kelman has since shepherded two major federal procurement reform acts into law as well as numerous changes to the FAR.)

But the real stars of the show will be senior supply management and operations executives from Hewlett-Packard, Procter & Gamble, Siemens, Best Buy and Motorola, who will share stories of how their companies have leveraged supply practices for competitive advantage.

Check back here for updates from the conference. I will also report on the last stop on my own Supply Management Forum (Houston), where I was exposed to some tricks of the trade from leading companies, including Cadbury-Schweppes and Hess.

My stop in Irvine reinforced a little spoken secret to successful supply management transformation initiatives: Whenever possible leverage a crisis to secure budget, resources, and alignment needed to get the job done right.

“Crises” such as Sarbanes Oxley Act (SOX) compliance and patent litigation enabled Qualcomm to drive standardized contracting and contract compliance procedures and systems in what was traditionally a highly decentralized environment. What started as an effort to gain better visibility and control of information technology (IT) contracts in 2002, rapidly advanced to an enterprise-wide adoption of a common contract lifecycle management (CLM) solution and a hybrid, center-led organizational structure. Debbie Adams, Senior Project Manager at Qualcomm says “corporate goals, such as SOX compliance, really helped accelerate and expand our original program into a company-wide initiative.”

Today, more than 600 employees use a common system to manage over 30,000 contracts — from basic supplier product and service contracts to complex customer, partner, and intellectual property agreements. While SOX and litigation helped speed alignment for contract standards and systems, Adams identified the following as critical success factors:

• Independent project management: Adams and the contract organization were not tied to any one team or IT. Instead, Qualcomm aligned the contract management group and initiative with an influential sponsor: corporate legal. “Having the General Counsel driving this initiative really helped get the businesses in line,” says Adams.
• Strong relationship and capable software tool: “Ensure that the [CLM] solution provider you select is configurable to your company’s processes and that your solution provider is responsive to your enhancement requests.”    
• Consensus through Steering Committee: Qualcomm drove and maintained support for the contract management initiative by ensure that all business units and multiple functional groups had input into the program structure and improvements. “We realized that people would be much more likely to support [the program] if they have a voice in it.”
• Mentor power users: Qualcomm’s contract group trains and advises power users within each business unit to speed responsiveness to stakeholders and alleviate pressure on the primary enterprise administrator. “Internal customer service and support can make or break a program’s success,” says Adams.
• Centralized oversight with decentralized ownership: Qualcomm’s contracts group and steering committee provide program vision, contracting and process business rules, system management, auditing, and training. They also manage the relationship with the company’s CLM solution provider. Leveraging the visibility and controls of the CLM system, Qualcomm affords business units and functional stakeholders the latitude for decentralized data entry, contract administration and management, unique reporting, contract negotiations, and customer and supplier relationship management. “We put a reliance on internal customers to provide the functional expertise to provide the unique language and terms required to ensure best value agreements that limit risk to the company,” says Adams. My own research has found that this “center-led” structure is becoming more popular, thanks to the visibility and control afforded by improved information management and reporting.
• Audit and measurement: Qualcomm ensures corporate goals and system adoption through standardized and periodic auditing and measurement. Adams says such standards also help Qualcomm quickly report on overall program performance and benefits.

True to form, Dave Stephens has lobbed his own Molotov Cocktail onto the On Demand/Software as a Service (SaaS) fire. Thankfully, he failed to directly cite my post last week as the inspiration for his ire. But the connection was obvious. And just after I said all those nice things about him. (Truth be told, I’m glad to see that he has not waivered from his no-punches-held-for-anyone character.)

In his recent post, Dave touts his former ERP company’s “exchange” (read: online marketplace software) software as one of the original gangster’s of SaaS. He says that his former employer’s exchange offering eventually failed due to the fact that customers reached a maturation point where they were either “satisfied enough with the feature-set or looking to heavily customize the solution meet their needs.”

Dave goes on to compare the multi-tenant SaaS model to a flop house where renters are at the whim of their landlord’s preference and timing for upgrades. He then compares installed enterprise software to a model home that you own and customize to your liking. (I found it amusing that the graphic Dave used to represent the “model home” was merely an architectural drawing of a home that was not yet built. Sort of echoes the running joke about ERP providers: What’s their favorite development platform? Powerpoint.)

While amusing commentary, Dave’s post is a bait and switch. Comparing his former employer’s exchange software to a true SaaS solution is like comparing Dom Deluise to Luciano Pavorotti. They are both entertainers with similar appearance, but only one has any true talent. The exchange model failed because the promised functionality never fully materialized and the marketplace business models they aimed to support were unrealistic on the magnitude of Star Wars (the Ronald Reagan kind).

But probably the biggest reason for the failure of the exchange model is that most providers myopically focused on technology and failed to fully embrace what is now know as SaaS as a true business philosophy that permeates every aspect of operations – from application architecture and delivery to pricing and packaging to customer service.

To counter Dave’s flop house versus custom home analogy, I would argue that subscription-based pricing is the smallest and easiest aspect of SaaS to replicate. In addition, the rapid innovation development approach enabled by SaaS actually makes solution providers more responsive to customer requests. By comparison, innovation at traditional enterprise application providers (even those now trying to hop the On Demand bandwagon) is slowed both by a business approach that favors monolithic upgrades that are available to clients for an additional fees and the need to support legacy application versions for those customers that don’t want to undergo the costs and pains of upgrading to the newest release.

If any type of rental property metaphor is appropriate, it is one that compares SaaS to a luxury property in a highly secure and gated community where maintenance and gardening is included, remodeling occurs while you’re away on vacation, and you have access to the latest kitchen equipment and jaccuzzi tubs — all at no extra cost.

I agree with Dave that traditional licensed applications are like building your own custom home — except for different reasons. Anyone that’s purchased a pre-construction house knows the realities of custom home ownership: you are perpetually evaluating color palates, arguing with contractors about overcharges, and spending your precious nights and weekends pulling weeds, cleaning gutters, and leveraging a second mortgage for future home improvements.

Don’t worry, we SaaS “renters” will wave to you as we make the turn onto the back nine while you sweat over your matinenace and repairs.

Apparently lots. Particularly when that exec is Dave Stephens. As part of his tenure in the software industry, Dave put a certain Redwood Shores-based ERP and database company on the SRM map. After a brief stint running that company’s CRM solutions group, Dave hung up his software jersey (although I anticipate this is a Michael Jordan-like retirement) and took up blogging on his true passion: procurement excellence.

Never one to hold punches, Dave uses his blog, Procurement Central, to delve into commodity markets and critiques the supply and strategies of some of the world’s largest organizations. Dave’s opinionated, no-holds barred style would make Jim Cramer blush. (Booyah!) I am particularly fond of his analyses of energy and commodity prices. He also serves up playful jabs at fellow bloggers, including this one.

I will be checking in with Dave frequently, and you should too.

The first stop on the West Coast swing of the Supply Management 2.0 Forum landed me in San Jose. I got the chance to reunite with former procurement software exec Dave Stephens (more on that later) and trade sourcing best practices with a number of companies, including Sun Microsystems. Widely known for is supply management expertise, Sun won the coveted Purchasing Magazine’s Medal of Excellence as well as Aberdeen Group’s Best Practices in e-Sourcing Award.

Sun’s e-sourcing program crescendoed last year, leveraging online sourcing to negotiate $102 million in direct materials savings. Once heavily reliant upon its solution provider for bid event management, the direct materials organization, which is led by Sun’s Worldwide Operations group, is transitioning to self-sufficiency and expects to manage nearly all its online negotiations and reverse auction events (what Sun calls “Dynamic Bidding Events (DBEs)”) on its own by year end.

With results like that, what do you do for an encore? A sit down with Tamara Serrato, Strategic Services Manager at Sun, reveals that the global technology provider is now applying dynamic bidding to indirect spending — from temp labor to field service support to, believe it or not, IT outsourcing and procurement outsourcing services. Sun has set a goal to channel a whopping $3 billion in indirect spend through dynamic bidding by the end of 2006. To get there, the company will mix tried and true best practices with a novel outsourcing approach.

First, the best practices: (more…)

Thanks to recent market events, the hype surrounding On Demand and its applicability in the supply management arena has reached Mission: Impossible III proportions. Sensing a change in enterprise software buying preferences, several traditional enterprise application providers have made desperate moves to hop the On Demand bandwagon. (I was half expecting the CEO of a certain German software company to show up at his company’s user conference last week on the back of a Ducati motorcycle and pronounce his love for Katie Holmes. Or, more likely, for Marc Benioff.)

These moves reinforce the arrival of On Demand or Software as a Service (SaaS) as an acceptable if not preferable model for software delivery. However, they also increase confusion over what On Demand truly is and what enterprises should expect from it.

Supply Excellence will begin an ongoing series to debunk On Demand myths, provide real-world examples of successful SaaS deployments, and investigate how this new business philosophy is changing the way enterprise applications are built, delivered, and used. Here’s some basics you need to know:

Will the real On Demand model please stand up?

At the most simplistic level, On Demand or SaaS is the delivery software functionality over the Internet from a single application instance that is shared across all clients. SaaS solutions require only a Web browser to access, eliminating the need to install or maintain software or hardware. They also replace the upfront licensing fees and lengthy implementation cycles associated with traditional installed applications with a “pay-as-you-go” or subscription-based service relationship.

Does On Demand Really Deliver?

Absolutely. In a compelling study, Triple Tree and the Software and Information Industry Association (SIAA) found that SaaS deployments are 50% to 90% faster with a total cost of ownership (TCO) five to ten times less expensive than traditional software. These factors limit risks typically associated with enterprise application deployments by reducing the need to secure scarce (and often rebellious) IT resources and by transitioning software investments from capital to operating budgets. (more…)

Like a cyborg from a bad movie sequel, this Supply Management versus Spend Management battle is the debate that just won’t die. Just when you thought it was safe to log onto your favorite Web site, Jason Busch, serial blogger and spend management evangelist is back with another volley.

In his latest installment, Jason mistakenly attributed my concerns with the term Spend Management to a misunderstanding the term “management.” I fully understand the strategic nature of holistic and effective management. (I also understand that truly effective management of anything has an elusive brass ring quality that would make even the most schooled executive act like Gollum. “Oh, my precious supplier.”) What I am concerned about is when a company is focused myopically on managing spend.

To be clear, I do believe spend management is a valuable practice. Companies do need to effectively analyze, leverage, and manage spend. But spend management is only a stepping stone to strategic supply management.

A company that improves its spend management performance will enhance its financial position through leveraged sourcing, more efficient internal operations, and better compliance. However, this inital improvement will be unsustainable and will not deliver differentiated product or value in the marketplace without due focus on establishing supply relationships based on total costs and then working jointly with suppliers to remove waste, improve performance, reduce risks, enhance innovation and competitive differentiation.

Put simply, Supply Management focuses not only on fully leveraging spending power and improving internal operations and compliance but also on developing and nuturing supplier relationships that drive continuous improvements in total cost and performance as well as joint competitive advantage. (Important side note: the principles for supply management excellence are as equally applicable and critical for direct materials and indirect goods and services.)

This final emphasis on holistically defining, managing, and improving the total cost of ownership of a supply relationship is what separates average and best-in-class performers. It is also what makes Supply Management a strategic and preferable discipline for sustained value.

Touching down in Windy City gave me a chance to catch up with my old pal (and recent debate opponent) Jason Busch. Jason has built a cult following with his Spend Matters blog where he mixes supply strategy and software industry gossip with a sardonic wit that can only come from an Ayn Rand devotee and former sourcing software marketer. (Think Page Six meets The Economist.)

At the Chicago stop of the Supply Management Forum, Jason did his best Alvin Toffler impersonation, delivering his top five predictions for the Future of Supply Management: