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Archive for July, 2006
July 31, 2006
by Tim Minahan at 6:42 am
Last week I revealed recommendations for evaluating contract management solutions. I also directed Supply Execellence readers to a new industry initiative to deliver a request for proposal (RFP) template that builds on best practices for contract management solution selection and that can serve as a foundation for such evaluations.
This post spurred inquiries for assistance in evaluating other supply management automation solution areas. One area of particular interest is online sourcing management automation (”e-sourcing”), largely because this is a market in transition.
Research I conducted while at Aberdeen Group revealed that nearly 90% of the Global 2000 have at least kicked the tires of e-sourcing, particularly in the area of online negotiations, including reverse auctions and electronic requests (e-RFx). Thanks to tightening supply market conditions and pressures to drive repeatable success, large enterprises are looking to adopt e-sourcing solutions that provide alternative and more collaborative total-value based negotiation approaches, project management and knowledge management capabilities, and advanced optimization-based decisions support. In fact, nearly half of the Global 2000 are now planning on investing in broader e-sourcing suites.
A research project I executed earlier this year, portended an even greater boom in e-sourcing adoption among mid-market companies, most of whom missed out on (and bore the brunt of) the first wave of supply management automation. Mid-sized enterprises emphasized selection of e-sourcing suites that incorporated support services (e.g., process and domain expertise) and supported integration to compliance tools, such as contract management.
The industry initiative I referred to last week when discussing contract management solutions, also developed an RFP for e-Sourcing solutions based on industry best-practices culled from actual RFPs and consultations. The Excel-based template is available for free (although registration is requried) and can be configured to match any unique requirements of an individual enterprise. (In full disclosure, my employer is just one of the sponsors of this industry RFP initiative.)
The e-Sourcing RFP site also includes valuable recommendations from global sourcing consultancy A.T. Kearney Procurement Solutions for selecting an e-sourcing solution. Some of A.T. Kearney’s key recommendations include:
- Make sure the software supports the sourcing strategies you employ
- Be sure the software is user-friendly, enabling widespread adoption for your company
- Find out if the technology is supported by best-in-class content and templates
- Find out if the provider can support you globally, if desired, with category and/or supply market experts with tangible procurement experience
- Make sure the technology is flexible enough to handle complex negotiations and last-minute changes
- Be sure the provider offers a 24/7 help desk for technology users
- Make sure the technology is intuitive enough that you don’t have to be dependent on the provider
- Ensure that the provider offers proper technology training for your internal users and suppliers
- Be sure the technology allows you to import/export data and provides flexibility in manipulating the data
- Find out how the provider uses any intellectual capital they gather
A.T. Kearney’s complete e-sourcing solution selection tips and other research are available at the www.sourcingrfp.com site.
The RFP template is intended to provide a foundation for e-sourcing solution selection and by no means reflects every unique nuance of your organization. I would recommend that enterprises augment their solution evaluations with input from other resources, including industry analysts, industry associations, and leading consultancies, like A.T. Kearney and Denali Consulting, which is a co-sponsor of the e-Sourcing RFP Template. Denali also sponsors the other supply management solution RFP templates in the series, including spending analysis, supplier management, and contract management.
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July 28, 2006
by Tim Minahan at 6:43 am
With profitability, compliance, and risk management high on executive agendas, demand for contract management automation has been climbing steadily for the past three years. Two recent benchmark reports from my alma mater Aberdeen Group indicate that businesses’ appetite for these solutions continues to grow. (Click here for free copy of the full report. Registration required.)
More than half of the nearly 200 supply management executives participating in Aberdeen’s benchmark reported using or plans to invest in contract management solutions within the next two years. And for good reason: In previous studies I executed while at Aberdeen, contract management solution users reported improving compliance by 55%, increasing rebate and discount capture by 30%, and halving contracting cycles, among other benefits.
With this heightened interest in contract management automation came an increase in the number of enterprise requests for advice on how best to evaluate available solutions and providers. (I still get these requests, despite having hung up my analyst cleats.) While a blog isn’t the ideal forum to deliver a deep dive into contract management (I’ll leave that to Aberdeen’s Vishal Patel), here are some recommended areas to consider in your evaluation of available solutions:
- Contract creation: Assess ability to support collaborative negotiation, redlining, and authoring, contract templates and clause libraries and approval routings and workflows. Also, for compliance purposes, ensure the system you select has document check-in/check-out and full audit trail capabilities. Mandate deep and native integration into Microsoft Word and Excel, which remain the most-used “solutions” for contract management.
- Contract repository: Ensure the solution includes the ability to develop and manage an electronic repository for all your contracts, clauses, and associated business documents and information.
- Contract administration: Look for solutions that help you automate and control contract management processes, including compliance management, amendments, and renwals.
- Reporting and analysis: Demand automated exception and milestone monitoring supported by alerts and escalations so you can track operational performance as well as termination and renewal dates, insurance, non-compliance, and other certifications. Also look for analytics capabilities to evaluate the risk of existing agreements and proposed clauses.
- Integration and support services: Ensure your solution provider has the ability to integrate with your back-office ERP, transaction, and legacy systems. Also examine support services, especially those for deployment and contract conversion.
Considering increasing inquiries on contract management automation solution selection (and the need to spend time doing my new day job), I am excited that my current employer has joined an industry initiative to develop a request for proposal (RFP) template for contract management automation solutions based on industry best-practices culled from actual RFPs and consultations. The Excel-based template is available for free (although registration is requried) and can be configured to match any unique requirements of an individual enterprise.
To be clear, the template is intended to provide a foundation for contract management solution selection and by no means reflects every unique nuance of your organization. I would recommend that enterprises augment their solution evaluations with input from other resources, including industry analysts and industry associations, such as the International Association for Commercial and Contract Management (IACCM), which is a co-sponsor of the Contract Management RFP Template.
(NOTE: The 2006 Contract Management RFP Template is just one of four templates aimed at helping enterprises navigate through the selection process for supply management automation solutions. Other templates offered for free through the initiative support evaluation of the following solution types: spending analysis, e-sourcing, and supplier portals and supplier management. Check back here for more guidelines for solution selection.)
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July 27, 2006
by Tim Minahan at 9:45 am
While firmly endorsing the adoption of environmentally and socially responsible supply management practices, Supply Excellence has never said going green would be easy. The latest proof: a new Purchasing magazine article reports that the European Union’s Restriction of Hazardous Substances (RoHS) has triggered shortages for both compliant and non-compliant electronic components.
The law, which went into effect July 1, prohibits the use of parts that contain lead, mercury chromium, and other hazardous substances. The timing could not have been worse.
Demand for electronic components has been climbining steadily in 2006, thanks to a resurgence in consumer electronics, medical, industrical control, and communications production.
In anticipation of RoHS most electronic component manufacturers have transitioned to making almost entirely compliant parts. However, the unexpected jump in demand and complications in converting some components to compliancy has resulted in insufficient supply. Scarcity has been exacerbated by hoarding of compliant components by paranoid supply managers looking to hedge against the risk of part outages.
Making matters worse is unexpected the stockpiling of non-compliant parts by both supply mangers and distributors. In fact, supply managers quoted in the article report an even bigger challenge securing non-compliant parts. “We continue to deal with customers who are in market segments that are not subject to legislation and we have active demand for non-compliant parts,” said the VP of supply chain for electronics manufacturing services (EMS) giant Celestica. “As suppliers convert their production over to producing compliant parts, it will become more difficult to get non-compliant parts in the future.”
To be fair, some of the demand for non-compliant parts is rational, fueled by supply managers in certain industries, such as networking infrastructure and medical equipment, that have been exempted from RoHS rules. But industry watchers predict that the scramble for non-compliant components will only get worse as production of these parts continues to dwindle.
The biggest beneficiaries from the new compliance rules could ultimately wind up being gray market…er…independent electronics distributors. Tightening supply is already boosting prices for non-compliant parts. Case in point: prices have jumped 50% of more for some non-compliant parts, such as NOR flash memory, according to the article.
It seems that RoHS has sent supply markets into a tizzy and has caused many supply managers to lose their grip on sound supply management practices. Unfortunately, this madness will likely get worse before it gets better.
Other federal and state municipalities have or plan to impose similar environmental regulations against hazardous materials in electronics equipment, including China, Korea, Japan, Argentina, and the states of California, Maine, Maryland, and Washington. And new environmental regulations are being extended to other industries, such as chemicals, automobiles, and wood-based packaging.
Faced with this inevitable tsunami of environmental regulations, supply managers would be wise to start preparing today. Here are a few tactics to put into your compliance toolkit:
- Become your company’s resident expert on pending environmental regs and assessing their potential impact on supply markets. (The above links offer a good primer on what’s coming down the pike.)
- Build cross-functional product compliance teams — consisting of design engineers, commodity managers, manufacturing, marketing, and aftermarket service managers – to embrace a “design for the environment” approach to ensure compliance for future products. Be sure to incorporate recycling, reuse, and disposal factors into your design plans. And consider ways to turn environmentally sound products into marketing boons that yield both higher prices and profits. (Hey, this strategy has been working for Starbucks and organic farmers.)
- Enhance demand- and supply-planning capabilities to ensure supply strategies support your company’s compliance goals.
- Nuture long-term relationships with critical component suppliers to ensure supply of critical compliant and non-compliant parts.
Posted in supply management, supplier management, enviro/social sustainability | 1 Comment »
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July 26, 2006
by Tim Minahan at 1:36 pm
Speculation that financier Carlos Ghosen, CEO of both Nissan and Renault, will head up a three-way alliance with faltering industry giant General Motors has ignited much commentary and criticism. I will avoid prognosticating on the likely success of merging three global automakers — each with more brands than the market will bear and vastly different organizational structures, business practices, and cultures. (Oops, I fear that may qualify as commentary.) Instead, I will examine the potential impact supply management improvements might have on GM’s future.
An article in the lastest issue of Fortune magazine validly suggests that a good indicator of how Ghosen might attempt to revive GM can be found in the playbook he used to turnaround Nissan. Hidden among plans to invest in small cars and step back from alternative fuels, is the strategy to “find the elusive synergies” between the auto-making triumverate. The top-noted synergies? Improve spending leverage, rationalize the supply base, and drive parts standardization and reuse.
On the surface, this appears to be a solid plan. An examination of previous mega-mergers suggests that as much as 60% of the so-called “synergies” are the result of improvements in spend leverage and supply management practices. (Considering this fact, I’m personally dubmfounded why a thorough spending analysis is not a prerequisite for any M&A due diligence.) The 2001 HP-Compaq merger is a good indication of the significant impact supply management leverage and improvements on the overall value and success of any merger.
In his profile on HP for Purchasing Magazine’s 2004 Medal of Excellence Award, my former teammate Jim Carbone says both companies brought supply management strengths to the merger: Compaq’s purchasing operation was centralized and the company was aggregating demand and leveraging spend with suppliers. By contrast, HP was more decentralized but was advanced in integrating buyers and suppliers into the new product development process.
After joining forces in 2001, the companies not only leveraged their joint buying power but also exchanged and standardized on best practices and systems, including risk management, spending analysis, e-procurement, and contract-sharing agreements with its contract manufacturing partners. (The latter is a technique HP calls “buy-sell” in which it buys parts from suppliers and sells them to its outsourcing partners. The process lowers material costs across the supply chain and allows HP to exact a slight margin on the resale.) According to Jim’s article, these efforts yielded the following results:
- Increased spending leverage contributed to $1.2 billion savings in production (”direct”) material costs
- Reduced number of direct materials suppliers by 53%
- Reduced number of logistics partners by 68%
- Cut logistics costs by 11%
- Helped reduce total supply chain costs as a percent of revenue by 22%.
It is important to note that HP’s efforts were not wanton cost-cutting tactics. On the contrary, HP’s efforts were intended to develop a supply network with which it could forge long-term relationships focused on joint innovation and continuous improvement. Evidence: HP fosters such collaboration by assigning senior-level executive sponsors to key suppliers to insure performance and drive improvements.
All this bodes well for supply management to lead a turnaround at GM, right? Well, not exactly. While there is no doubt the above practices are a sure-fire method to reduce supply costs, GM has a few things working against it. (more…)
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July 24, 2006
by Tim Minahan at 9:13 am
Spend Matters crusader Jason Busch (and the proud father of a new baby boy) has donned his cape again; this time to defend the value of spending analysis against false statements from the world’s second-largest ERP vendor.
Jason exposed a new white paper from the vendor (mis)advises enterprises to avoid spending analysis projects and programs because they “would require a multimillion dollar investment in hardware, software licenses, custom development, and professional services from multiple, domain-specific service providers for data homogenization.” That single statement rings of more irony than an Alanis Morrisette song. And I commend Jason for attacking it.
I won’t decipher the irony of an ERP vendor warning enterprises from investing millions of dollars in software that will homogenize their data and processes. In his post, Dr. Busch offers a thorough analysis of this classic case of what those in the physciatric world would call projectionism. Jason’s specific diagnosis, “In my view, only a vendor with fundamental flaws in its spend analytics capability would create such a whitepaper to misled the market and cover-up their shortcomings.”
In fact, I took this ERP vendor to task on the spending analysis issue last year while participating on a panel at its user conference. (Actually, I was baited by then head of this ERP provider’s procurement solutions group, Dave Stephens, blog master for Procurement Central and father of a new-age open source procurement platform. Dave is master of initiating a heated dialogue.)
The ERP vendor’s latest “black paper” — as Jason aptly names it — validates a point in my recent blog stating that, as an analyst, I noted many software vendors — particularly ERP and BI vendors — pitching spending analysis merely as building a data cube or data warehouse from which you could run analyses and reports as spending analysis in an attempt to “confuse the marketplace (possibly intentionally).”
As evidenced in Aberdeen Group’s latest benchmark on spending analysis, building a data cube and reports is the least challenging aspect of the process. Instead, it is repeatable classification of spending information to a structured schema (e.g., UNSPSC, eClass, proprietary schema, etc.) and then enrichment of this data with related business information (e.g., parent-child relationships, financial risk scores, contracts, performance information) where the real value (and effort) lies. In fact, previous Aberdeen research found a direct correlation between the amount of data aggregated and the accuracy and detail of classification and the value returned — in the form of greater cost savings and improved compliance.
And the idea that all the data you need for effective spending analysis is contained within your ERP system is wrong-headed and dangerous. First, spend data is dispersed between disparate internal systems (including the multiple instances of ERP systems that are common among larger enterprises) and external systems (e.g., ACH, P-card, and systems of suppliers — such as contract manufacturers and 3PLs — managing spend on your company’s behalf). Second, as one procurement executive once told me, “My ERP system was built for high-level financial analysis. It doesn’t always contain the detailed attribute data I need for classification analysis of my spending and commodities.” (more…)
Posted in best practices, spend analysis | 3 Comments »
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July 21, 2006
by Tim Minahan at 9:53 am
I have long been a student of global sourcing strategies, actively tracking moves by some of the largest U.S. companies to identify and develop suppliers in emerging regions with attractive labor arbitrage benefits, such as China, Malaysia, India, and Eastern Europe. However, there are early indications that a sluggish domestic economy, rising energy prices, and tightening financial policies are transforming the U.S. into an attractive supply and manufacturing region for foreign companies.
New trade data indicates that the weaker dollar and strong economic growth are conspiring to increase demand for U.S.-produced products. An article in Wall Street Journal this week indicates that U.S. exports of goods are up 10% this year. Exports of capital goods – such as construction equipment, machinery, tools, and software – are running 15% above last year levels.
Even low-cost countries are now trying to capitalize on the weaker U.S. dollar by snatching up machinery and software from U.S. manufacturers in order to foster their next wave of growth. The U.S. Commerce Department reports that China and Brazil have boosted their purchases of U.S. equipment by 16% and 31%, respectively, during the first five months of this year.
(LCCS pioneer United Technologies Corp. attributes recent earnings growth to high demand from these emerging markets. While much of this growth is due to the above economic factors, it reinforces the fact the strategy to have supply management lead companies into emerging markets and set up local supply lines – before fully capitalizing on sales in those markets.)
These same factors are encouraging foreign businesses to outsource or set up manufacturing in the U.S. The greatest evidence or this trend is within the auto industry. While Detroit is attempting to cure their ills by sourcing more assemblies and parts from emerging markets like China, foreign automakers are moving to set up shop and source supplies in the U.S.
It’s difficult to open a business magazine without seeing an article or advertisement in which Honda or Toyota is touting recent expansions in their U.S.-based manufacturing capacity. Honda this month announced plans to open its 14th manufacturing plant in North America – this time in Indiana. The news follows a similar announcement earlier this year from Toyota, which said it would open its 13th North American manufacturing plant.
The Japanese automakers are also increasing the local “U.S. content” within their vehicles. A recent Detroit Free Press article reported that Toyota now spends $20 billion annually with North American parts suppliers, an increase of 400% from a decade ago.
These moves further buoy Spend Matters champion Jason Busch’s claims that low-cost country sourcing will disappear. Says Jason: “In the future, overall country competitiveness and flexible strategies will trump labor costs.”
With the wage rate for an average GM factory worker running $74 per hour versus $3.50 for a factory worker in China, it’s clear that these Japanese transplants are not coming to America to lower manufacturing costs. Their motivation for this seemingly counter-intuitive supply management strategy is much more business savvy.
Toyota and Honda are using their supply and manufacturing strategies to help accelerate truck and automotive sales in one of the hottest consumer markets on the planet. How? By demonstrating social responsibility and investment in local U.S. markets, particularly those ripe with manual laborers, rising unemployment, and favorable tax policies.
This supply strategy seems to be paying off. In a matter of 20 years, these Japanese transplants have gone from being the enemy of U.S. businesses and communities (particularly in the Midwest) to becoming the favored customers and automakers in America. Strategic supply management and manufacturing moves (coupled with producing high quality vehicles) have made Toyota and Honda vehicles top-sellers in the U.S.
U.S. manufacturers will be wise to consider similar socially responsible supply management and manufacturing strategies in developed and emerging markets around the globe.
Posted in supply management, sourcing, best practices, enviro/social sustainability | 8 Comments »
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July 20, 2006
by Tim Minahan at 8:35 am
Recognizing that new market challenges are forcing supply management executives to upskill their teams, Supply Excellence has proffered advice on recruiting and developing talent. A new study from Denali Consulting and SupplyStaff examines an even greater labor challenge: how to retain your best people.
As noted in previous posts, talent poaching has reached new heights in the supply management arena. A week doesn’t go by where I don’t hear some supply management executive grousing about losing an all-star to another internal function or a competitor. Skills particularly high in demand in today’s supply management marketplace include financial acumen, MBA degrees, engineering talent, and experience running successful supply management solution deployments.
The Denali study reports that the typical company experiences a nearly 40% voluntary turnover rate by employees. The study also warns that job satisfaction does not guarantee an employee won’t jump ship. “I like my current position,” said one supply manager participating in the study. “But I also realize I must be master of my own destiny and can’t expect my boss to facilitate or even inspire me toward my future career moves.”
So what is a good indicator of employee retention? Not surprisingly, a good salary tops the list. (As higlighted in a previous post, competitive salaries also have a direct impact on supply management performance.)
Management approach also impacts employee retention, according to the study. “Our experienced supply chain management staff needs more autonomy to drive improvements,” said one study participant. “Too many approvals and too much bureaucracy is stifling creative solutions.”
The study also found that employees prefer a work environment that continually challenges them to perform better and provides a clear career path.
So how can you hang onto your best talent? The study points to four secrets:
- Keep your team’s work challenging
- Reframe your department to nurture highly-skilled candidates
- Encourage and allow balance between work and life
- Develop mentoring programs to encourage advancement
In short, if you don’t recognize and reward your top-performing team members, someone else will. Denali’s study offers some good advice on how to ensure that you can not only transform but also sustain supply management improvements.
Posted in supply management, skills rectruitment and development | 3 Comments »
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July 18, 2006
by Tim Minahan at 9:36 am
Last week, Procurement Central attempted to incite a new war over On Demand and Software as a Service (SaaS). ERP executive-turned-blogger-turned-open source evangelist Dave Stephens used the release of Aberdeen Group’s latest On Demand Supply Management Benchmark report to try to minimize the significance of On Demand and SaaS as merely a new flavor of application hosting.
Personally, I find this argument particularly amusing in light of Dave’s recent championing of open source and services oriented architectures (SOA). While I would never claim to be a software engineer, it seems to me that open source and SOA can very easily be characterized as the latest refrain of component-based architectures and object-oriented architectures before that. (Second verse, same as the first…)
Dave might admit that open source and SOA borrow some attributes of these earlier development approaches, but he would strongly argue that the business orientation of open source is inherently different, fostering collaborative development, reinforcing the use (and reuse) of industry standards and application code, and exponentially multiplying available software engineering resources.
Similarly, I would argue that On Demand is very different than preceeding application service provdier (ASP) models. (Dave and I have respectively described open source and SaaS as “the future of enterprise applications.” And they are!) In fact, On Demand shares many of the community aspects that make open source so attractive:
- Application development: As a recent AMR report stated, “SaaS has created a new culture within the software community where customer service, user adoption, and easier implementations are the new gold standard.” Indeed, On Demand providers ascribe to an incremental development process that frequently rolls out new features to all customers and embraces customers as active participants in the specification of these enhancements. (In fact, I personally sit on an enhancement review board that prioritizes customer requests for new supply management functionality.)
- Application and service delivery: With On Demand, all customers leverage a shared but highly configurable instance of an application running on shared hardware within a shared data center. This communal approach provides economies of scale that lower total cost of both delivery and ownership, enhance security and performance, and deliver frequent enhancements to all customers — without additional fees or implementation costs.
- Community intelligence: As Sudy Bharadwaj, author of Aberdeen’s new On Demand Supply Management report, argues “On Demand allows for community benefits…enabling users to benefit from benchmarks from supply management activities of all members of a community.” On Demand users also benefit from deployment and process best practices that are shared between customers and incorporated into new service and content offerings from the On Demand provider.
I countered most of Dave’s critiques of On Demand in my previous post on the subject. As for his disappointment that Sudy did not provide financial models comparing the TCO of On Demand solutions versus traditional installed and licensed applications, I applaud Aberdeen for not rehashing these old arguments. (The TCO benefits of On Demand have been well documented in previous Aberdeen reports and by other research firms, such as Triple-Tree.)
With its latest report, Aberdeen has moved the debate forward by focusing on other aspects of On Demand, such as measuring and quantifying time-to-value and the tangible impact of the model on supply management performance.
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July 17, 2006
by Tim Minahan at 6:00 am
Last month’s posting on Julie Murphree’s interview with the CEO of the National Corn Growers Association uncovered concerns that ethanol’s growth as a primary energy source could be stunted due to insufficient feedstock and refinery capacity, and high production costs. A recent article in the Wall Street Journal suggests that these issues could be resolved within the next few years thanks to an unlikely hero: bacteria.
A new concept called “cellulosic ethanol” involves training armies of bacterium to transform a myriad of materials and byproducts — including crop residues, wood chips, switchgrass, and plain old garbage — into ethanol.
While the idea of tiny microbiotic bugs munching on cast off coffee grounds and banana peels may seem more science fiction than real science, the article predicts that cellulosic ethanol plants could be mass producing cost-effective ethanol by 2009. If it works, the technology could double the amount of ethanol produced by a single corn field — not to mention other biodegrable materials.
Multiple factors are conspiring to accelerate the fesiblity of mass produced cellulosic ethanol:
- Public policy changes: Last year’s energy bill set a goal for industry to be producing 250 million gallons of cellulosic ethanol annually by 2013, allowing federal loan guarantees for new cellulosic biorefineries. President Bush upped the ante this year, doubling funds earmarked for the cellulosic research effort and setting a goal of making the fuel competitive within six years.
- Rising energy costs: Rising oil prices and uncertain oil supplies and refiniery capacity have accelerated investments in alternative energy sources.
- Economic incentives: In addition to federal tax breaks and funding, new approaches to cellulosic ethanol have pushed the cost of producing ethanol from to $1.35 per gallon. And this cost will only go lower with more investment in this area.
Such factors have sounded the starting gun for the great cellulosic ethanol race. And the event is attracting the world’s top energy athletes, with DuPont, Archer-Daniels Midland (ADM) Co., Royal Dutch Shell Group, British Petroleum, Chevron, and Iogen racing to captialize on the opportunity.
The cellulosic ethanol race serves as a case study in what it takes for sustainable energy and enviromentally and socially responsible supply management practices to go mainstream: a mix of public policy changes, changing business pressures, and economic incentives. Expect similar dynamics to emerge in other sectors, such as metals recycling and reuse, where supply market constraints and inflation are forcing policymakers and industry to think different.
Posted in enviro/social sustainability | 3 Comments »
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July 14, 2006
by Tim Minahan at 3:03 pm
Following on the heels of Aberdeen Group’s latest report, The Spend Intelligence Benchmark, Spend Matters champion Jason Busch took issue with the title. While aptly applauding Aberdeen’s continued research in this area, Jason took Aberdeen to task for using, in his words, Orwellian double-speak by introducing yet another name for spending analysis. Jason called the term spend intelligence “misleading” and said it “sounds like a new take or sub-segment of business intelligence (BI) software.” While I’d be the first to caution against the introduction of new jargon. Business executives are already reeling from the flurry of terms and acronyms being tossed their way. (The heated debates between Jason and me on spend management versus supply management is further evidence of this fact.) I must come to the defense of my alma mater on this matter. Jason aptly points out that spend data is tied up in multiple, disparate systems both within (e.g., AP, Finance, Purchasing, etc.) and outside the enterprise (e.g., P-cards, ACH, any third party buying goods/services on your company’s behalf). He is also right in that the real effort in this daunting task is not building a spend cube or reporting but aggregating, cleansing, classifying, and enhancing/enriching spend data.
In fact, here is my issue with his complaint. As an analyst, every software vendor — from fledgling sourcing startups to old-school ERP and BI providers — touted their spending analysis capabilities. The caveat: you just needed to give them the data in a cleansed, classified, and structured format. Or, pay them or a systems integrator gobs of money to manually aggregate and structure your data for analysis. (And forget about data enrichment.) In short, most vendors pitched building a data cube or data warehouse from which you could run analyses and reports as spending analysis. They were wrong. And they confused the marketplace (possibly intentionally).
It is the automated and repeatable classification of spending information to a structured schema (e.g., UNSPSC, eClass, proprietary schema, etc.) and then the enrichment of this data with related business information (e.g., parent-child relationships, financial risk scores, contracts, performance information) that turns spend information from “dumb” data into true spend intelligence that a company can use to make fact-based sourcing and supply decisions rather than gut-based or hunch-based decisions.
This distinction is illustrated in the real-world story of a global technology company I once counseled. Like many enterprises, this company felt it’s spend visibility and intelligence problems would be solved by standardizing on a single ERP solution globally. To its credit, the company achieved global deployment. Unfortnately, it sooned learned that the ERP system didn’t provide the granular-level visibility sourcing managers required to truly understand its spending position. “We knew IT was a big spending area for us, but [the system] couldn’t provide us visibility into whether we were buying general-line PCs or SPARC stations,” one supply management executive told me. (more…)
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