Tomes have been written on how technology has streamlined and improved existing supply management processes — from ordering paper clips via a Web-based catalog to sourcing complex assemblies via highly competitive online negotiation methods with suppliers from all corners of the globe.

Yet, little ink has been shed on the real value technology will bring to purchasing and supply management. As noted in posts here on Supply Management 2.0, the real benefit of technology is its ability to enable advanced analytical scenarios and entirely new business processes that derive new sources of value for both buyers and suppliers.

KLM Royal Dutch Airlines is one company that is using technology to drive innovative new supply management practices. The world’s largest airline company is no stranger to technology-enabled supply chain approaches. According to a new article in Travel Procurement Magazine, in the past six years, KLM has used a common e-sourcing tool to “source everything from aircraft seats and temporary staffing to plastics and flight crew uniforms.”

Yet, the most compelling part of the article focuses on how KLM has used e-sourcing to overhaul its approach for sourcing hotel accommodations for its crew, staff, and distressed passengers.

Like most companies, KLM negotiates annual contracts with its hotel providers. However, Dolf Mesland, KLM’s corporate procurement and fleet manager, says contract rates act as ceiling prices: “They are the maximum amount we would pay.”

KLM’s contracted hotels use the e-sourcing tool to update their rates daily based on room availability and market conditions. According to the article, “Hotel personnel log in [to the e-sourcing tool] as many as eight times a day, entering rate quotes and availability information and seeing how their offers compare with those unidentified competitors.”

This innovative sourcing process ensures that KLM gets the best room rate at a given location on any given day. Rates in the annual hotel contracts protect KLM from overpaying or blowing its budget for a give room. And hotels benefit from being able to ensure that their rooms are fully occupied. Consider it load balancing for the hospitality industry.

The article reports that KLM conducts 700 such hotel e-sourcing events annually, purchasing nearly 7,000 rooms per month through this channel.

Says Mesland: “This is far more efficient for our staff and for our hotels. No one has to make calls. It’s all quite clear as to what happens. In the past, it wasn’t transparent at all; now it is transparent for all.”

Read the full article here. Or, better yet, learn more about KLM’s innovative sourcing methods first hand at Empower 2007. To register or get more information on KLM and the nearly 50 other enterprises presenting supply and contract management best practices at the conference.

If you didn’t heed my warning last week to read Purchasing magazine’s cover story, Best Practices in Risk Management, maybe this will entice you to take a look:

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According to the article, “Executives have learned that it’s not just continuity of supply that’s affected: It’s the company’s financial performance.”

Indeed, as the above graphic suggests, 33% - 40% of companies experiencing a supply disruption suffer lower stock returns than their peers. Other areas business performance areas negatively impacted by supply disruptions include lost revenues, profit margin loss, market position, and company brand and image. (Just ask Firestone.)

Supply managers would be wise to use the risk issue to secure the executive and policy support, resources, and budget required to push forward their supply management transformation plan. Be sure to use the above stats to build a case that hits the issues your CFO and CEO care most about.

For more fodder for your supply risk management business case, download the Aberdeen Group’s latest report on the issue, Supply Risk Increasing While Market Stands Still.

In a call with Purchasing magazine Editor-in-Chief Paul Teague earlier this week, the discussion inevitably turned to the big issues facing purchasing and supply management executives today. Top of mind for the CPOs Teague’s been talking to: supply risk.

“The role of purchasing has transitioned to become one of risk portfolio manager,” said Teague. “Low-cost country sourcing and lean strategies are exposing supply chains to more risk. And purchasing and supply managers must do a better job of predicting and managing risk.”

Teague points to Dow’s Procurement Risk Assessment and Mitigation (PRAM) approach as one to emulate. Developed after a series of supply disruptions due to Hurricane Katrina, PRAM combines financial and operational risk models with contingency planning methods.

Dow works with key suppliers to determine the impact of certain risks and assigns a probability factor to each risk scenario. Next Dow and its suppliers develop risk mitigation and contingency plans for the most probable risks. Dow then validates each plan in a homegrown risk scenario assessment system and retools its mitigation and response approaches accordingly.

A little Web sluething pointed me to Purchasing’s excellent cover story on Supply Risk Management, which, not suprisingly provides a full expose on Dow’s PRAM program. According to the article, Dow is initially focusing PRAM on its $5 billion raw materials spend: “The goal is to put about $2 billion of raw-material spend through the PRAM by the end of 2007.” The remaining raw material spend will be risk-assessed by the end of 2008.

According to Purchasing, PRAM has already helped Dow avoid a number of supply risks that could have impacted more than $200 million in profit. In one instance Dow uncovered a dangerous single-source situation. In another it detected a raw material that was at risk of being banned by regulators. In each case, Dow quickly took action to seek secondary and alternative sources (and types) of supply.

Dow’s story should sound familiar to Supply Excellence readers. The PRAM program emulates Hewlett-Packard’s Procurement Risk Management (PRM) approach which has been profiled here. Both companies have developed a standard framework for assessing and mitigating risk. But HP utilizes its assessments to develop risk-reward-based agreements with its critical suppliers. According to the PRM program manager, this has helped not only mitigate risk but also improved supplier relationships: “The company that bears the risk, gets paid for it.”

For a more detailed look at risk management and to better determine where your company is at risk, download Aberdeen Group’s recent benchmark on the subject, Supply Risk Increasing While Market Stands Still.

Inquiring minds at the Aberdeen Group want to know.

The industry analyst cum new-age benchmarking firm has launched its latest investigation into how supply management organizations are aggregating, classifying, and analyzing spend data. Andrew Bartolini, head of Aberdeen’s Supply Management research practice, says the study will:

• Assess major drivers for spend analysis
• Examine successful strategies, and
• Provide quantifiable benchmarks you can use to assess your company’s spend analysis performance.

As always, Aberdeen will also provide recommendations for actions you can take to turn your spend analysis program into a best-in-class performance engine.

Take the Spend Analysis Benchmark survey here. 

All participants will receive a free copy of the findings report, which is scheduled for publication next month.

Can’t wait that long? Download Aberdeen’s previous report on the subject, The Spend Intelligence Benchmark here.

Or, for a second opinion, listen to Andrew Bartels share Forrester Research’s views on spend analysis best practices and the solution marketplace.

As proof that you can’t believe everything you read, the U.S. Bureau of Labor Statistics reports that overall employment for purchasing and supply managers is expected to “grow slower than the average for all occupations through the year 2014.”

What?

• Don’t tell that to the VP of Procurement and Operations at a Massachusetts-based manufacturing company I met with last week. He was griping “I can’t find people with the right talent fast enough.”
• Or the U.K.-based procurement executive that worried that his veteran team lacked the skill set required to compete in today’s global and technology-proficient marketplace: “Many of our [supply management] team have been doing purchasing a certain way for decades. They are uncomfortable with adopting new processes and systems. I am concerned about driving adoption.”
• And certainly keep it a secret from the hordes of CPOs that have sounded the alarm on talent poaching occurring in their ranks.

In fact, in a recent study of top purchasing and supply management executives, Aberdeen Group outright refutes BLS’ claims, reporting that ” top CPO’s rank recruiting, training, retaining, and aligning their organizations as their #1 goals.” (Download a free copy of the full report here.)

BLS’ errors don’t stop there. The government agency goes on to wrongly report that “demand for purchasing workers will be limited by improving software.” On the contrary, every recent study on supply management employment trends reports that technical skills and experience implementing, managing, and using procurement and supply management software are among the most in demand. (Listen to Professor Joseph Carter of Arizona State University and the Center for Advanced Purchasing Studies’ views and advice on the supply management talentissue.)

Pulled from 2004 assessments, the overview makes working in a salt mine seem more attractive than joining the purchasing ranks. (Although, BLS is positive about working conditions for purchasing employees, stating that “most work in comfortable offices.”) Case in point: the agency’s stats for purchasing compensation is also way off the mark when compared to recent annual salary surveys from ISM and Purchasing magazine. See comparison in table below.

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BLS’ assessment is not only wrong, it casts the entire purchasing and supply management discipline in a bad light. (And just as the C-suite is beginning to recognize the critical importance of the function.) With the purchasing getting such a bad rap as a career choice, the talent crunch in this sector will only get worse.

What can you do? In addition to improving your recruitment, training, and retention approaches, write or call the Bureau of Labor Statistics and demand they correct this egregious mistake. The agency has a special “hotline” set up to field “complaints concerning information quality.” And, when it comes to their 411 on purchasing there is a serious quality issue.

Lodge your complaint via e-mail: dataqa@bls.gov. Be sure to identify the information quality issue (see above), how it is negatively impacting your organization (ditto), and provide references on how the data can be improved (double ditto).

Your action can help secure the continued growth and enhance the profile of the purchasing and supply management profession.

Today, Supply Excellence would like to welcome Chris Happ, Executive Vice President and co-founder of blueSolutions Inc., a technical and business strategy consulting firm focused on assisting with supply management technology and strategy deployments. A veteran consultant himself, Happ tackles the ever-elusive questions of What is supply management, really? And how can it deliver value to both the top- and bottom-lines?

At social gatherings, we are all forced with answering that inevitable introductory question, “What do you do?” As I answer Supply Management, I am often greeted with confused looks.

As I try to simplify and answer, “You know…reverse auctions,” I am quickly greeted with dirty looks, or in the best case, a mildly amusing response about saving a gas company money.

Little do my detractors realize, I am on their side in this struggle to define Supply Management, and I am as worried as they are about where it will end up.

We have an excellent opportunity to define what an efficient supply-chain means. Oddly enough, little of it has to do with price. The question of how we accomplish this efficiency is much more intriguing, and I will focus on the three key principles global leaders demonstrate in this area.

• Analyze – Understand your population of suppliers as well as your costs of doing business with a supplier. What costs your organization the most money – ordering, invoicing, paying? While transacting with you, what expenses do your suppliers incur that make their costs rise? Understanding these costs is the first step to eliminate unnecessary expenses from the relationship. One of the most common failures in this area, especially with the increased adoption of Procurement technologies, is the notion that spend under management is the primary measure of success. In many cases, it is more of an outcome, as many of our customers have achieved significant savings by focusing on eliminating manual processing of low-dollar high-transaction counts such as Office Supplies and Telecommunications invoices.
• Enable – Build an efficient network in which to transact business with your suppliers. Technology, while certainly only a portion of the puzzle, can allow for expensive and inefficient processes to be reduced or eliminated. Creating an effective way of transacting business can reduce transactional costs on both sides, thereby allowing the savings to be redistributed between Buyer and Seller. One common success we have seen in this area has been the growth of Supplier Networks such as those provided by leading e-procurement vendors. Many of our customers have reported 15-20% cost reductions due to the expanded adoption of such connection hubs. Of course the challenges remain in adopting standards, interconnection between Networks, the cost model employed by the provider, and the ease of supplier adoption.
• Manage – Most important, understand the relationship you have with your supplier. Categorize them into quadrants and offer them opportunities based on strategic need. I certainly don’t worry much about where I buy my next pen, but my haircut is a different story – I want my barber to be incented to look out for me. One of our largest customers is a pioneer in this area where they segment suppliers and offer those top few hundred global partners guaranteed contracts based on jointly developed cost savings opportunities. Those strategic suppliers are considered critical to the bottom-line success and collaboration at the highest-level of the organizations occurs on a quarterly basis.

Everything I have noted here is focused on the Buy-Side, but Suppliers, you are not immune in any of this. You must make the same assessments and respond accordingly; otherwise price will continue to be the obvious measure of differentiation.

Our global economy with connective technology offers many opportunities for developing efficient networks and relationships –it is the true leaders, who will take advantage, and emerge successful in this, as Thomas Friedman appropriately puts it, ‘flat world.’

Thank you, Chris, for bringing clarity to an often overlooked subject. Your advice also provides a good framework for companies to consider when structuring a supply management improvement effort.

Sparked by risk-management leader Hewlett-Packard’s comment that “the greatest supply risks are the day-to-day operational risks that can detract from shareholder value and performance,” Supply Excellence has been taking a deeper look at how best to gather, manage, and track key supplier profile, capabilities, and performance information.

Today, we begin showcasing companies putting Supplier Information Management principles in action.

Consider Constellation Brands. The world’s largest producer of wine and a leading importer of liquor and spirits needed a quick way to gather profile, capability, and risk information across thousands of globally dispersed suppliers, used by seven independent operating companies running on three continents.

Constellation made Supplier Information Management a foundational element of its global supply chain management overhaul. As part of a broader supplier management system (and approach), Constellation adopted a commercially available, Web-based supplier portal capability that empowered suppliers to register and manage their own profile and capabilities information via a self-service portal. Suppliers are guided through a structured registration commodity-specific survey defined by Constellation’s supply chain team. The survey addresses some common global measures in the areas of cost, innovation, quality, and service. The supply chain group works with the businesses to add measures that support unique attributes of specific spend categories or regional jurisdictions.

Suppliers are prompted to upload critical documentation — such as certifications or proof of insurance. The system automatically “scores” supplier responses, enabling Constellation’s commodity managers to quickly segment and prioritize suppliers for further review, corrective action, or rationalization.

“Instead of our buyers running around trying to gather accurate [supplier] data every time we conduct a sourcing project or supply chain audit, the system provides that information to the commodity manager’s desktop,” said Chris Herbst, Supply Chain Program Manager at Constellation Brands.

The system also automatically tracks key milestones — such as insurance termination — alerting suppliers in advance when information or documentation requires updating. If suppliers are unresponsive, the system will escalate the issue to the appropriate commodity manager for further action. Says Herbst: “This makes us more efficient and provides an early warning system for supply chain risks.”

The common supplier information repository also gives Constellation’s distributed team a common view into supplier capabilities and risks by commodity, business, and region. In addition to the above benefits, this enhanced supply chain visibility has helped Constellation identify opportunities to increase spend leverage and cull supplier rolls across divisions.

Constellation has wisely connected these Supplier Information Management capabilities with supplier scorecarding and performance management, and corrective action and improvement plan management.
Herbst gives a complete overview of Constellation’s supplier management approach and experience in a recent Top 5 Supply Strategies Webinar. Listen to this supplier management approach here.

To paraphrase Mark Twain: rumors that CIOs are out to kill Software-as-a-Service (SaaS) have been greatly exaggerated. A feature article in latest print edition of CIO Insight magazine reports that IT execs now view SaaS as a low-risk, low-cost, and low-burden way to access best-of-breed functionality and to satisfy requirements of business line executives.

The article, SaaS: Speedy Deployment and Then Some, reports all the expected (and previous reported) reasons why businesses are adopting SaaS: rapid deployment, reduced upfront investment, and minimal IT burdens.

It also cites unexpected findings from a recent McKinsey study indicating that the percentage of CIOs considering SaaS adoption has nearly doubled over the past year. According to the study, 61% of CIOs are now evaluating SaaS-based business solutions, dispelling myths that technologists are adverse to the On Demand model.

Yet, the most compelling part of the article is CIO Insight’s handy list of questions to determine how best to leverage SaaS. I have compiled these questions into a handy table below.

Supply management executives would be wise to take use these questions to help build a business case for SaaS-based solutions that can speed improvements for your organization.

Yesterday’s post gave a sneak peek at the surprising early findings from IACCM’s ongoing Challenges in Global Supply Chain. Topping the list of surprises was that purchasing and supply chain executives from around the globe awarded Europe the dubious title as the toughest place to negotitate and manage supply — even those from European-based firms. 

Some other oft overlooked hurdles of doing business abroad identified in IACCM’s early findings include:

• Logistics, negotiation and on-time delivery are among the areas supply managers cite as most challenging. In fact, IACCM reports that more than half the survey participants highlighted long shipping leadtimes, burdensome and time-consuming customs procedures, delivery delays, and managing exchange rates among the more challenging issues when managing global supply. 
  

• Internal issues, such as lack of resources, internal contention and insufficient planning are also constraining the results of global sourcing initiatives. Specifically, IACCM found that insufficient in-country resources negatively impacted supply manager’s ability to effectively identify and assess suppliers and to manage ongoing quality and cultural challenges.
• Despite flaming headlines in the business press (and from Democratic Presidential hopefuls), ethical standards and labor-related issues have not proved to be significant issues when sourcing and managing supply abroad.

When it comes to region-specific challenges, IACCM ucovered the following: 

• Quality control and managing across language and culture are the two most severe on-going issues. This is particularly true in Asia, where quality, culture and logistics are all major concerns in dealing with suppliers there.
• When it comes to dealing with suppliers in Europe, government regulation, cost, and long lead-times are far greater challenges. (Just try to call a supplier in Spain or Italy over the next two months.)

Once again, I encourage Supply Excellence readers to take part in this ground-breaking benchmark study by completing this 5-minute survey. All participants will receive a complimentary copy of the final report.

What’s the most challenging place in the world to negotiate and manage supply?

If you listen to the news media and blogsphere lately, you would likely answer China. (This response would be a lock if you’ve been reading SpendMatters’ PBS-like 27-part series on the hazards of China sourcing. For today’s guest blogger on the subject, I think Jason has found a Shanghai street vendor claiming that his kebob business was shut down after he received a shipment of bad chicken from Purdue.)

Yet, regarldess of your news source, your answer would be wrong.Early findings from a new IACCM study found that purchasing and supply chain professionals rate Europe as the most challenging region to negotiate and manage suppliers.

In sharing a preview of the findings with me earlier this week, IACCM President Tim Cummins reported that “Europe emerges as the geographic region that is most complex to do business with - in many cases, even for Europeans.” By contrast, “North America is seen by professionals from all geographies as by far the easiest and lowest risk trading partner.”

IACCM’s ongoing Challenges in Global Supply Chain study, which has already surveyed experienced procurement and supply chain professionals from all regions of the world, uncovered other unexpected and less publicized issues that add to the costs and risks of sourcing and managing supply globally.

One finding that might surprise Supply Excellence readers: North America companies reported more challenges managing global supply than companies in other regions. Cummins says that this may be the result of North American businesses having “less familiarity and experience with the realities of international trade - and perhaps being ’spoilt’ by the relative ease of trade within their domestic region.”

Bolstering this claim were findings that rated Europe as the toughest region within which to negotiate and manage supply. North American supply managers find it more challenging to do business with Europe than with Asia-Pacific suppliers. Even European supply chain execs name their own region as the most challenging within which to negotiate and manage supply relationships.

The harsh reality is that, despite its claims of a Eutopian pan-European trading community, the European Union still operates like an amalgam of distinct countries. This issue foces supply managers to navigate the cultures and regulations of multiple jurisdictions. Says Cummins: “On topics such as negotiation, labor issues and costs, Europe poses significantly greater difficulties.” (Hear Cummins recommendations on managing global supplier and contract relationships on this Supply Now podcast.)

For the record, Europeans say North America is the easiest locale to do business. Cummins doesn’t project why this is the case. But it is most likely because of the favorable U.S. trade rules, quality suppliers, solid infrastructure, and, more recently, the weak U.S. dollar.

Tune in here tomorrow for more early findings from IACCM’s latest investigation into the challenges of global supply. In the interim, take part in this ground-breaking benchmark study by completing this 5-minute survey. All participants will receive a complimentary copy of the final report.