The Supply Management Forum in San Jose last week was a venerable Who’s Who in high technology, with supply management executives from the world’s leading software, hardware, and media companies swapping stories and tips on global supply strategies. And that was just the audience.

Our featured panelists included Roll International Corporation Director of Strategic Sourcing Alvin Wong, who shared his group’s unique “pull-demand” approach to supply management transformation. Novation Vice President of Information Services showcased the unique challenges and strategies for managing the healthcare supply chain. (More on both those presentations later.)

San Jose also brought back A.T. Kearney Procurement Solutions Director of Knowledge Management Jane Wanklyn for an encore presentation on leading strategies for category and supply risk management. You can read more about Jane’s suggested category and risk management best practices here and here.

Jane was kind enough to provide a list of information sources to help supply managers size up category trends and assessing potential supply risks. I have taken the liberty of reprinting and augmenting the list below, adding in hyperlinks and my own favorite sourcs where appropriate:

• News feeds (RSS): I use Purchasing Magazine and CNNMoney, among others.
• Newsletters: I subscribe to way too many. Some of the most relevant for this audience include Purchasing’s Price and Supply Alert, which features the magazine’s proprietary reports on supply and pricing trends for core commodities and parst. How Smart People Buy and Sourcing Intelligence from GlobalCPO.com offer up best practices and one-of-a-kind interviews with hard to reach supply management executives. These newsletters are coincidentally from Doug Smock, the former Editor-in-Chief of (you guessed it) Purchasing Magazine.
• Trade associations: Jane didn’t offer up recommendations here. But I often troll industry association websites for supply and pricing trends, including the Aluminum Assocation, American Hydrogen Association, American Iron and Steel Institute (AISI), Steel Manufacturers Association (SMA) and the National Textile Association.
• Publications and reports: Jane recommends the Economist Intelligence Unit, which offers macro-economic analysis and forecasts on more than 200 countries and eight key industries. This is a must-have for global sourcing organizations looking to captilize on emerging market supply and for hedging risks. (However, in my opinion, EIU’s technology and business process research is often light and misguided in its analysis.) Jane also endorses ISI Emerging Markets, which offers country and industry sector intelligence similar to EIU, and RGE Monitor, which provides timely news and analysis on global markets and risks. To these fee-based information services, I would add the Industry Cost Escalation (ICE) Alert, which provides predictive models on supply and pricing trends. I previewed the ICE Alert in a previous post. For free (yet not as timely) intelligence, Jane recommends the CIA World Factbook, which offers comprehensive country profiles — including geo-political risks. She also endorses Political Risk Services, which is a directory for all sources of country, commodity, and risk intelligence and consultants. It also includes useful user reviews and comments about their own experiences with these sources. I would also recommend the the Bureau of Labor Statistics or the Department of Energy, which offer valuable insights into commodity and labor trends.

I suggest you bookmark these invaluable resources today. I would also encourage you to add a comment to share additional sources that you use for category and supply risk intelligence. 

Last week’s rant — “Putting an End to Patent Madness” — put the spotlight on a critical issue for enterprises considering supply management software investments. It also sparked some great debate among Supply Excellence readers looking to balance intellectual property (IP) protection with the insatiable need for continuous innovation and improvement.

I tip my hat to Doug Hudgeon’s thoughtful response, which I have shared in its entirety below. (I also encourage you to check out Doug’s own blog, Vendor Management, which offers a pragmatic practitioner’s view from the land Down Under:

I understand and appreciate the rationale behind the patent system - certain capital investment would not be worthwhile if the investor was not granted a time-limited monopoly in which to recoup the investment. The inequities apparent in the patent system stem from two problems: 1) granting the monopoly for time periods longer than required to recoup the investment, and 2) granting the monopoly to non-novel inventions.

As to the first point, the equity of the patent system correlates highly with the differential between the time required to originally manufacture the product and the time required to replicate it. Compare drug manufacture to software creation: a drug may take 10 years to design, develop and bring to market and 2 months for a competitor to replicate. Whereas a software application that takes a year to write may still take 6-9 months for a competitor to replicate.

As to the second point, novelty is determined by whether the invention is obvious to an experienced practitioner in the industry. The issue faced by the patent office is that a limited number of people are adjudicating on an infinite (or nearly so) number of industries. Inventions that appear novel to an examiner may in fact be obvious to a truly experienced practitioner. I hope that the US Patent Office’s foray into crowd-sourcing is going to help address this point: http://www.washingtonpost.com/wp-dyn/ content/article/2007/ 03/04/AR2007030401263.html

Many thanks, Doug. Your arguments are well put. I too hope that the US Patent Office, Congress, and the Supreme Court are listening.

Last week’s post on CPO views of supply management metrics ignited a heated debate among Supply Excellence readers. The post cited comments from the CPOs of National City Corporation and AllianceBerstein stating that cost reduction was the chief metric for supply management performance.

Since then, I have been flamed by angry readers defending the finer points of cost avoidance and performance measures. Some of these arguments were well founded. (You can read all the comments here.) But all Supply Excellence reader comments served the original intent of this post: to spark debate on what supply management’s value metric currently is and, more importantly, what it needs to become.

Before we get into the future of supply management metrics, I thought it important to clarify the comments in question made by CPOs during the Supply Management 2.0 Forum in New York earlier this month:

• National City Corp. CPO Jean-Jacques Beasussart said “cost reduction is the only thing that matters” to his company’s CFO. As stated in the original post, Beaussart’s supply management team does measure other performance attributes, such as supplier risk, but it is the cost reduction metric that helps him get the attention and support of the CFO. “The CFO of the business has to be your best friend,” said Beaussart. “But you have to speak his language and provide him with tangible results.”
• National City calculates hard-dollar savings contributed by procurement as follows: Cost Delta (between previous costs and newly negotiated costs) X Actual Purchase Volume = Savings.
• National City’s supply management team’s reported savings are validated by the Finance group. Once approved, Finance removes these supply cost savings from the businesses’ budgets. In other words, Finance takes an active role in ensuring that savings negotiated and driven by the supply management group become actual savings within the business P&L.

That should set aside any misgivings on the cost savings issue and whether cost savings is the only metric supply management groups should follow.

It isn’t. And that’s exactly the debate I had hoped this post would ignite.

If cost savings is the only measure that defines supply management’s value to the organization, then our function will never be considered strategic. In fact, supply management organizations that myopically focus on costs are sentencing themselves to business purgatory, with their importance and support within the organization rising and falling with the economic cycles.

As I’ve stated before, the only way to prove and sustain supply management’s strategic role is to quantify the function’s contribution to your company’s core objectives, such as developing innovative new products, increasing profits, penetrating new markets, and enhancing the corporate brand. Measures for the new era (Supply Management 2.0) should focus on supply management organization’s contribution to:

• increased profits, sales, and earnings per share
• faster time-to-market cycles
• introduction of competitively differentiated supplier innovations 
• increased customer satisfaction and renewals
• corporate sustainability and risk management 
• strategic positioning of the brand with existing clients and the broader marketplace.

I’m happy to say that companies like Sun Microsystems, Qualcomm, Starbucks, Hewlett-Packard, and others have made this shift. I’m even happier to report that Supply Excellence readers also recognize the importance of changing the metrics for supply management success.

Wrote one Supply Excellence reader: “Accounting measures for supply chain performance have an almost exclusive focus on cost savings or cost avoidance. Savings and avoidances are certainly worthy, insofar as they improve the bottom line. Savings alone, however, do nothing to help us build the business while the right supply chain strategic measures can and often do so.”

The most successful supply management groups will be those that use the current macro-economic factors (e.g., globalization, outsourcing, energy crisis, inflation, tightening supply markets) to secure the resources and support not only to drive near-term cost savings goals (i.e., what the CFO cares about today), but also to establish the internal alliances and organizational, process, and systems infrastructures to prove how you can contribute long term and sustainable value to your company’s corporate agenda. 

The rule of business these days seems to be: Those that can, do. Those that can’t, file a patent-infringement lawsuit. 

In tech circles, patents have traditionally functioned as the intellectual property equivalent of the Cold War, with each company’s arsenal of patents deterring the other from firing the first shot. Unfortunately, it is fast becoming modus operandi for businesses to use patents to squelch competition and artifically inflate revenues.

Patent cases have flooded court dockets and business headlines in recent weeks, with long-time holders dusting off patents on everything from graphical user interface and e-mail approaches to core data processing methods. Now I’m all for intellectual property protection, particularly when it comes to truly innovative technologies. (Indeed, today’s leading desktop applications owe a yet unpaid debt to innovations originally created by Xerox.) But the recent flurry of infringement filings have gotten way out of hand.

Consider recent patent infringement suits filed by erstwhile supply management technology companies on the use of software to support common processes, such as spend analysis and certain features of reverse auctions. (You can read all the details on recent SpendMatters posts.) While I neither know nor care about the merits of these recent cases, I have grave concerns about attepmts to squash innovation through litigation. I have particular concerns about patents that have been awarded for replicating common processes, such as placing an order in an electronic form. I mean, should the U.S. postal service (or the Pony Express) be able to lay claim to royalties for all the e-mails that have ever been sent? (Okay, an exaggeration, but not by much.)

While delivering near-term competitive advantage, such lawsuits will only wind up damaging the entire supply management sector — introducing new risks, stalling solution investments, and adding costs and delays to product development as vendors spend less time creating innovative new features and more time questioning, “Will this hold up in court.”

In my unlearned opinion, the patent office has fanned the flames of such ludicrous lawsuits by awarding patents on core business processes. And news this month that industrial distributor Consumers Interstate Corporation has been awarded a patent for core lean procurement principles – such as value engineering and waste reduction initiatives – threatens the very core of supply management transformation. 

Patent law was meant to foster and protect innovation. Not stifle it. I fear that we are sliding down a slippery slope that could further diminish the competitiveness of U.S. industry. The Courts and lawmakers seem to agree. Recent Supreme Court rulings indicated that limits must be placed on the scope and applicability of patent-related claims. Reform legislation being considered by Congress would, among other things, allow more peer review before awarding patents and make it more difficult for patent holders to sue and collect large damage awards in infringement cases.

If such reforms don’t pass, I’m tempted to file a patent on the patent-infringement filing process. Then retire to Tahiti on the royalties. Pass the coconut oil, please.

Driving change is hard. Driving change in a highly decentralized business environment without a clear mandate can be downright overwhelming. That was the challenged faced by one of the world’s largest and most innovative technology companies.
 “For a company that prides itself on innovation, driving standard procurement processes and procedures is almost counter to the business culture,” the Senior Program Management for the technology giant’s Global Procurement Group told the audience of supply management executives attending the Supply Management 2.0 Forum in Chicago last week. “We needed to prove the value of procurement and to arm our team and stakeholders with the information and tools to improve [procurement performance].”
The Global Procurement Group set out to prove its salt by adopting a common e-sourcing platform globally, enabling it to establish and reinforce standard sourcing practices, monitor spend and sourcing results, and return some quick and measurable supply savings and performance results to the businesses.
Another cornerstone of the technology firm’s transformation plan was to establish a central, online knowledge center for all sourcing and category management policies, templates, and best practices. Accessible to the company’s 250 global procurement team members through a common Web browser, this Procurement Center of Excellence (CoE) provides content and tools in four key areas:

1. Category management – includes how-to-guides and templates for category planning, including opportunity assessments, spend analysis, supply market assessments, and demand management approaches. Additional content and tools support standards for category goal setting, compliance, and category profiles and business reviews.
2. Strategic sourcing – offers best practices and templates for RFx, negotiations, and strategic sourcing processes. Also includes step-by-step guides for sourcing project management and validation, e-sourcing user guides and training materials, contract lifecycle management, and savings implementation planning.
3. Vendor management – provides vendor performance management tools, including standard scorecard questionnaires and templates, and strategic business reviews, as well as templates for issue resolution and vendor innovation tracking. Also includes protocol for vendor relationship management and risk management.
4. Professional development – offers a well-defined map for career advancement, including calendars of training, certifications, and recommended reading as well as a current listing of open procurement positions. Also provides access to third-party research, benchmarking, and professional organizations.

The Web-based CoE, which was developed and is maintained by the company’s own procurement team, also includes a listing of category subject matter experts (SMEs) and an open discussion board for questions on supply management or category approaches. To foster CoE adoption, the procurement team continually tracks usage and issues weekly targeted “One-Minute Update” e-mails on new content, templates, or policies.  The technology giant also encourages cross-region and –divisional collaboration and the use of standard best practices by SMEs available across the businesses and by requiring peer review of every category and sourcing plan.
The approach has been well received, according to the company’s Senior Program Director. Traffic to the CoE continues to trend up. And the procurement team is seeing results in the form of improved use of standard methods and reporting as well as better acceptance of procurement across the organization.

A common refrain I hear from procurement execs is ”What are the right key performance indicators (KPIs) to measure supply management success?” In a recent report, Aberdeen Group proffered a list of the Top 10 Procurement KPIs. But Chief Procurement Officers (CPOs) tend to have a more direct answer: it’s all about cost savings.

Case in point: at the Supply Management 2.0 Forum in New York last week, AllianceBerstein CPO Joanna Martinez told the audience that her group reports the ratio of the fully burdened cost of procurement operations (e.g., salaries, benefits, equipment, real estate) to the cost savings that procurement generates for the organization. (This is the core measure benchmarking firm Hackett Group uses to assess purchasing performance.)

National City Corp. CPO Jean-Jacques Beaussart was more direct in his answer: “When I talk with my CFO, cost reduction is the only thing that matters.”

Beaussart said hard-dollar supply savings are best calculated as follows:

Cost Delta (between previous costs and newly negotiated costs) X Purchase Volume = Savings

As one of the nation’s Top 10 banks, National City puts extra emphasis on aligning supply and finance goals. Beaussart says his team works directly with the CFO to validate and approve savings. Once approved by the Finance group, supply cost savings are removed directly from the businesses’ budgets.

To be fair, National City does track other measures, such as revenue generated for the bank through the use of purchasing cards (P-cards) and commercial cards used for travel purchases. But hard-dollar cost reduction is what matters most.

“We don’t count cost avoidance,” said Beaussart. “I think cost avoidance is a cancer on sourcing because it can be added and debated in so many different ways.”

Beaussart recommends that supply management groups develop a well-defined method for measuring actual versus projected cost savings, particularly for big projects. He also emphasizes the importance of communicating status of cost savings initiatives to all impacted stakeholders — particularly finance — through reports that reflect both progress towards goals and are tailored to the business user. “This procedures shows the business and your comapny that you have a disciplined approach to [cost savings] and that you are contributing to the goals of the business.”

The Supply Management 2.0 Tour pulls into San Jose this Thursday, showcasing supply management executive views on driving complete supply management transformation. The Westcoast swing of the U.S. leg of the tour features:

• Alvin Wong, Director of Strategic Sourcing at Roll International Corporation, will discuss his company’s unique “pull-demand” approach to unifying and streamlining supply management across multiple global operating companies.
• Alex Latham, Vice President of Information Services at Novation, the nation’s largest healthcare contracting services provider, will provide best practices for aligning goals and driving supply management transformation in a diverse organization with multiple locations and stakeholders. He should know. Novation is using a common supply management technology platform to improve supply visibility, compliance, and performance across its 2,500 hospitals and affilitates.
• Jane Wanklyn, Director of Knowledge Management at A.T. Kearney Procurement Solutions will reprise her workshop for developing effective category and risk management programs, which received high marks from attendees at the New York Forum.

Located at the easily accessible Doubletree Hotel San Jose, the Forum will also prove a valuable event for networking with other supply management execs. There are still a few slots available, so secure your spot today. Get more information or to register here.

In addition to the risk management issue, the Supply Management 2.0 Forum in New York last week rekindled the old (tired?) debate on the differences between supply and spend management. 

When discussing his group’s supply management transformation initiative, National City Corporation CPO Jean-Jacques Beaussart summed it up this way: “e-Sourcing and supply management is about real cash savings. e-Procurement is about knowing and controlling our company’s behavior.”

Armed with this insight, National City has segmented tactical transactional activities (i.e., procure-to-pay) from strategic sourcing and supplier management activities from both an operational and systems perspective. The below slide provides an excellent visual overview of how National City has structured its supply management and procurement operations and where they intersect:

(Click graphic to enlarge.)

This approach is becoming increasingly popular among supply organizations as they begin to recognize that the once-heralded requisition-to-pay process improvemetns touch only a portion of total spend and often take years to effectively deploy. Evidence the fact that National City only manages about 25% of its total spending through its procure-to-pay system. “And we accomplished that primarily by digitizing our invoices,” said Beaussart, noting that his company currently uses a variety of applications from multiple vendors for the procure-to-pay process.

By contrast, National City has established a matrixed organization to manage strategic sourcing, contract compliance, and supplier performance and risk management activities. Every member of this strategic supply management group is Six Sigma certified and trained in a supply management-specific change management program. The group relies on a single, integrated platform to manage information and processes across the sourcing, contract, and supplier management lifecycle. “As the CPO, I have an online dashboard view into all sourcing, contract, and supplier management projects and information so I know what’s going on in my organization every day,” said Beaussart.

He has wisely linked his strategic supply management group to the businesses in the following ways:

• Strategic sourcing management for National City’s two key businesses (Mortgage and Banking) — with responsibility for sourcing and compliance across all major spend categories, including outsourcing, corporate services (e.g., labor, print, travel, etc.), and information technology.
• Supplier management — which manages supplier relationships and promotes common supplier performance measurement and risk management across the corporation.
• Strategic initiatives and risk management — which is responsible for supply management technology deployment, ongoing risk assessments and mitigation, contract and compliance management, and supplier diversity and development initiatives.

The supply management group works closely with National City’s CFO to validate and approve all sourcing and supply savings. Once approved, savings are removed from the business budgets. (More on that in an upcoming post.)

The decision to segment tactical purchasing activities from strategic supply management operations and systems has allowed National City to fully manage all spending and to drive quick and measurable improvements in supply cost and performance. This bifurcated organizational and systems approach has been embraced by other leading enterprises — like Barclays and UPM — that are attempting to make strategic supply management a core business practice and to transition transactional procure-to-pay operations a shared service that, if appropriate, could eventually be outsourced.

The latest installment of the SupplyNow podcast series tackles the hottest supply management topics of the moment:

• Global contracting: IACCM President Tim Cummins offers sage advice on navigating the challenges of negotiating and managing trading agreements across country borders.
• Protectionism: SpendMatters’ blogmaster Jason Busch, rants against protectionism and the demise of the U.S. dollar. He also offers some controversial views on supplier diversity initiatives.
• Chrysler: I give a first take on what the buy out of Chrysler might mean for the future of Detroit and the automotive supply chain.

This episode of ongoing podcast series from Supply Excellence and Spend Matters is sure to spark debate. It also provides some practical advice to combat the complexities of global supply.

Listen in to the latest SupplyNow episode below or tune in on iTunes:

Yesterday’s post on National City Corporation’s  supply risk management approaches generated significant interest from Supply Excellence readers, several of whom asked for tips on how to assess and mitigate supply risk.

Jane Wanklyn, Director of Knowledge Management at A.T. Kearney Procurement Solutions offered the following advice earlier this week at the Supply Management 2.0 Forum in New York: “Procurement must ensure that supply continuity is represented in the overall corporate risk management strategy.” According to Wanklyn, key things for supply managers to consider include:

• Category segmentation will be important to define commodities which are strategic and therefore merit well-developed risk management strategies.
• Potential suppliers should be pre-qualified well in advance of selection.
• Dual sourcing strategies and product substitution plans should be considered for all key categories.
• Key risk indicators (KRI) should be identified and risk levels monitored.”

In a post presentation Q&A, a supply management executive in attendance was concerned about the effort to apply such procedures. “How far down the supply chain must we go to monitor and manage risk? I just don’t have the resources to do this with every category.”

Wanklyn and other panelists emphasized that that was the point. It isn’t practical to assess risk and contingency planning across all tiers of the supply chain for all categories. You need to determine what are your most strategic and most at risk categories and apply these approaches to those.

In short, when it comes to supply risk management, it’s better to do something than nothing at all. Too often enterprises get analysis paralysis, fearing that they lack the resources or skills to effectively assess and manage supply risks. But the costs of not doing anything are too high. (And getting more costly every day.) Instead of fearing risk, embrace it.

To get started, take a page from Sun Tzu’s Art of War: divide your supply base into strategic and risk sectors; and establish ample risk assessments and contingency plans to conquer risk in those sectors.