Zycus report - Path-to-procurement-excellence

This week I came across an interesting report from a leading player in startegic sourcing and spend analysis - Zycus titled "Zycus path-to-procurement-excellence A CPO’s complete reference guide to sustainable performance improvement through strategic sourcing and procurement management ". A long name but a crisp document to guide you on practices and processes around strategic sourcing. An impressive work done by purchasing magazine and Zycus. It not only talks about the step by step process - a multi year one - to reach to startegic savings goal but also puts up process maturity maps to measure different factors at each step. I will recommend every consultant to surely read and learn from this.

This is what happens when blogger goes missing

And I opologies for it.

Yes I took off for few days from blogging. I had lot of topics to discuss about, had a list of things to put opinion about, as data management industry and specifically spend classification industry is buzzing - new products, new methods, new people and customer is looking at spend analysis like never before. But I had to consoldiate my inputs, put a thought process and then thought about posting lot of things. So here I am ... In next few days/weeks I will be posting all those subject posts here .. so watch the space ...

Spend Analysis Applications can help you to manage Supplier Risk and SOX compliance too.

The current economic scenario (even if it’s started looking little bit good now) demands every CEO, CFO to look for a way to save money from whatever way it comes. Supply Chain, Procurement, Strategic Sourcing are, Supplier Relationship Management are always major focus area for optimization. Spend visibility is one such area in Enterprise Performance Optimization – EPO - which gives a promise to identify potential savings. Now everybody knows there are too many products and players in the industry which claims to provide spend visibility. Sales people always claims to give you moon and pitch products in a way like – “you put the data from this side and see the 10% savings on the dashboard on the other side”. But as we know, in every data sensitive engagement it’s a process behind the product that needs to work on your data before you really gets that dashboard – but that’s not the point for today.
The point is do you know what to look for when you see those jazzy reports and dashboards on a spend visibility application. Is it just about “Spend by category”, “Spend by Suppliers” and some kind of “Price variance” with few columns here are there? Certainly NO. These are few mandatory “reports” that one should expect from spend visibility portal anyway. Then what’s more you can get and you should look for in the same reports?


There are 2 different areas that these applications can help you to optimize.
1. Supplier Risk Analysis – What are the financial risks regarding your “Important” suppliers. They are high on spend and obviously important and some low on spend but critical to business operations. Where are you placed in risk maturity model when it comes to these suppliers? You should certainly look for this information on your


2. SOX compliance – Yes – the most talked about thing in industry – Sarbanes Oxley act. The act aims to create auditable business processes, improve financial transparency, and create strong internal operational controls. It requires that companies prepare and maintain documentation of financial reporting processes, create internal controls, evaluate and correct control deficiencies. This one thing is not that much talked about feature in these solutions. If your consultant gives you a right advice, and able to get the right data from your systems, your spend visibility solution can be extremely helpful in reporting, tracking and compliance of SOX specifically for articles 302, 304, 401, 404 or 802.


There are different types of risks to deal with in Supplier Risk Analysis. Few of them are -


• Strategic risk
• Operations risk
• Supply risk
• Financial risk
• Fiscal risk
• Regulatory risk
• Legal risk


On higher level some of these can be categorized as Strategic, Geo Political and Financial Risks. In this series we will discuss some of these aspects in next 2 weeks and then move to really interesting topic of how spend analysis solution can help you in SOX compliance too


You can write your feedback comments right here, or send me an email to pmendki@gmail.com . Thanks for visiting.


Prashant Mendki

Increase revenue by checking and fixing data quality issues

These days everybody talks about cost cutting, increasing revenue, how the depression, recession affecting company margins and how the job losses are imminent and so on and so forth. All this is true and real and no doubt everybody is looking at new avenues to struggle with the numbers. Though there is no magic recipe to alter the scenario overnight, lot of people, lot of companies are failing to see optimization chances within the organization and chance of increasing revenue – data in their own systems. What data – everything – right from suppliers, customers, materials. What to look for – Data Quality.


The surveys done by few companies in the area estimated that the by managing the data quality one can increase revenue by 66%. Now let’s take that as marketing gimmick on the face, but then assume its half of that – still there is a chance of revenue increase of 33% - do you want to believe that? I do.


My experience with large global enterprises in the data area points me to believe in that. There are these multiple locations, multiple plants, and multiple systems having too many suppliers, too many material getting procured – direct or indirect. All this creates big quality issues in the data – same supplier calling by different names, IBM, I B M, I.B.M, …….favorite example of quality industry, not having linkages among suppliers in system. So this issue prevents to get visibility of suppliers – subsidiaries and vendors relationship. If you have that visibility there are greater chances of negotiations with parent suppliers and thereby affecting the bottom line. End of the day this is one supplier but as your data is too scattered its difficult for you to get visibility. E.g. You are happy to have contract with doubletree hotel, another with embassy suites and likewise but if you have linkages in your system correctly maintained, you will know that they are all “Blackstone group” and if you have negotiated contract with Blackstone then probably your saving is much much more.


That’s just one example of supplier data. Same applies to materials. A simple example is matching attribute values for materials. As the data doesn’t contain attribute values at the detailed down the hierarchy level – you cannot compare same or similar materials using your systems. If you have that probably you can use material available in plant A rather than procuring it right away. So data quality saves you there.


Classification –spend or material – both are another data quality related areas – which we will discuss briefly about in next article.


Thanks
Prashant Mendki
pmendki@gmail.com

Who in Supplier diversity program - An interesting Aspect

Last week after I posted third part of my Supplier diversity series of - What Why and How, I got an question from my esteemed senior colleague Ashok Pai, Who works in Supply chain industry worldwide for decades and a Client Partner with Bristlecone, asking "When are you writing about WHO aspect of this?" I replied saying I never thought of that angle, as my basic assumption was that supplier onboarding process is part of strategic sourcing and procurement department chain so those are the people who will be implementing it. And then he mentioned to me that "Look at it from supplier onboarding angle, which is a major pain area for US industry". As I started thinking and researching from that angle, I realized that as a part of diversity implementation its easy to say that run the diversity program in industry, capture supplier attendtion, get the diverse suppliers registered and start doing business with them - its hard to implement. Its really hard to get a new supplier onboard.

This week, I was planning to write something on Supplier Risk associated with the diversity and how that should be assesed as well as mitigated. But I think that needs to wait as I see Supplier Onboarding gets precedence once we talk about How to implement diversity program. I will post that shortly.

How to implement the supplier diversity program? Key Parameters of Decision Matrix -

In last two articles we discussed two questions about supplier diversity. Basic one like WHAT is Supplier Diversity and its types , Second most important one for business decision WHY? What are key business drivers to implement supplier diversity?

Now the third important question is HOW? What are my key parameters to make this decision on implementing diversity program? What are the steps? How should I determine what are my organizational needs? What is an assessment criterion?
Key steps or parameters for your decision matrix would be –
1. Define scope and set your goal – link it to organizational goal so you have good business case
2. Build the internal database; connect with suppliers, make the data complete.
3. Run a diversity program
4. Audit, Monitor and upgrade

Understanding your requirements and goal setting is first and important steps for implementing supplier diversity. This will not only enable you to asses and quantify the things for assessment and monitoring your program in future, this will also enable you to convey your ideas clearly with the stakeholders and ensure that the commitment is from top.
The goal setting is with 2 major aspects – one is to shortlist commodities that can be or should be bought from diversity suppliers. The other goal can be budgetary to ensure that $XXX in a period – quarterly or yearly – must be spent through diversity suppliers. A hybrid approach on “preferential” supplier list is also an option. In that case one can put the diverse suppliers as a preferred in the list of materials and do away with the budgetary constraints. This way your diversity program is not just a “Something for charity”, but actually a business driver. Also by doing this, if your risk chart signals that a small supplier would not be able to fulfill demand in said time, the order goes to next preferred. This will keep check of quality, innovation, commitment as well as business demands and risks in check.

Once you set the goal, ensure that the organization commitment to the program is there. All commodity managers, supply chain strategists, the procurement people knows and recognized importance of the program. This will make sure that the program gets on track once you set the ground for execution and not just remains on paper as a initiative. You may need to spend more time building collateral documents, presentations with departments, charting out risk path, getting a diversity consultant to answer all possible questions coming out and drawing a road map.

The next task is to check your database – which is a first step towards realization of the program and you will see that it’s not in as good shape as you thought about. Vendor master is always a pain area but also a powerful enough to save lot of (I mean it) money. You just need to be patient to check and make it cleaner, leaner and find negotiating opportunities from it to save. But that’s another topic to talk about. So get it normalized and standardized and may be classified. And then ask your service provider to identify diversity status of each supplier. Also ask each individual supplier to identify own diversity status. You may actually need to help your small suppliers to identify and register their status with the federal or state agencies or certifying agencies or own certification and auditing process. It’s a long and exhaustive process for sure as there has to be auditing and legal compliance with all this.

The next step is to run the diversity program for industry. So you campaign the program for industry players, attend conference, drive point to small suppliers about your program, encourage new vendors to register and identify them, shortlist commodities / supplier relationships, identify strengths, assess risks with individual entities, its impact and then make a tolerable risk impacted program. Go public with your diversity commitment and start building actual relationship with these suppliers.

Auditing and monitoring your program time to time is most important part of the process initially. Once it has its own traction, and becomes policy it will be on auto pilot mode and may need attention whenever there is a change. But setting it up and showing results (revenue, risk and reliability) are a herculean task to do. Right mindset can only drive it.
Be aware – it’s a change and people don’t like change. So expect resistance. Expect people opposing it. Be firm, be reasonable, and make sure you have good consultants always at reach to help you out justifying things – as you cannot wear many hats.
As we know now – WHAT, WHY and HOW, let’s look next week at the risk associated with the supplier diversity and probable mitigation of it.

Please post your comments here or send it to me by email on pmendki@gmail.com

Prashant Mendki, PMP

What are key business drivers to implement supplier diversity program in my enterprise?

Last week in a related article we discussed about diversity definitions and what each type means. Now the real question that procurement managers in a enterprise needs to answer when there is a talk about implementing supplier diversity is “Why should we implement Supplier Diversity?”. Once (s)he knows answer to this question, then comes the turn of how to implement it.

Today let’s look at the key drivers behind the supplier diversity initiative and how one can not only justify but also build a business case around it to take organization along with you.

The basic premise here is - A supplier diversity program will partner your company with businesses that are owned and/or operated by women; African, Hispanic, Asian and Native Americans; gay and lesbian individuals; and veterans. It will also connect you with companies that may have been overlooked because of their size as well as those located in economically distressed areas.

Now all that is fine, but do these connections make a business sense for me? Do they make value addition in the overall supply chain? The answer is YES.

To list down few benefits of implementing supplier diversity program are –
Since most diverse suppliers are also small businesses, companies find that diverse suppliers offer greater flexibility, more customer focus, and lower cost structures. The vast number of diverse suppliers and the fierce competition for business is also seen as a powerful driver for innovation.

A 2003 study by CHI Research determined that small businesses generate 13 to 14 times more patents per employee than large firms. Many companies use their supplier diversity programs as a means to tap into small businesses and the innovation that is occurring at these firms.

Additionally, companies that have strong supplier diversity programs appear to get more out of their procurement organizations than companies that do not. In a 2006 study by The Hackett Group, companies that focus heavily on supplier diversity generate 133% greater return on the cost of procurement compared to average companies.

And the most important point to look at are the trends in demographic shift - According to findings of Minority Business Development Agency (MBDA) of US dept of commerce titled “AN OVERVIEW OF THE 2002 SURVEY OF BUSINESS OWNERS” -

In 2002, there were 4.1 million MBEs representing almost 18 percent of firms that could be classified according to the race, ethnicity, or gender of ownership. These firms earned gross receipts of $668 billon (8 percent of gross receipts attributable to classifiable firms) and employed 4.7 million workers (9 percent of workers employed by classifiable firms).

For a number of measures, MBEs showed strong growth in the 5 years between the surveys:

1. Between 1997 and 2002, the number of MBEs increased by 35 percent. The number of non minority firms5 increased by only 6 percent. The number of all U.S. firms increased by 10 percent.

2. From 1997 to 2002, annual gross receipts generated by MBEs increased by 13 percent. Annual gross receipts generated by non-minority firms increased only 3 percent over the same period.

3. The number of workers employed by MBEs grew by 5 percent between 1997 and 2002. Over the same period, the number of workers employed by non-minority firms declined 7 percent.

Large MBEs—MBEs with gross annual receipts greater than $500,000—showed particularly strong performance

1. In 2002, there were 194 thousand large MBEs, representing 5 percent of all MBEs. These firms generated $498 billion in annual receipts and employed 3.4 million people. That year, large MBEs generated 75 percent of total gross receipts attributable to MBEs, and employed 73 percent of the workers employed by MBEs.

2. The number of large MBEs increased by 15 percent between 1997 and 2002. The number of similarly sized non-minority firms grew by 13 percent.

3. From 1997 and 2002, annual gross receipts of large MBEs grew by 11 percent. Annual gross receipts of similarly sized non-minority firms grew by only 3 percent.

4. Over the same period, the number of workers employed by large MBEs increased by 9 percent. The number of workers employed by similarly sized non-minority firms declined by 6 percent.

5. Average gross receipts of large MBEs decreased by 3 percent between 1997 and 2002. Over that same time period, average gross receipts of similarly sized non-minority firms declined 9 percent.

If we look at the population trends –
1. The minority share of the total US population is projected to increase from 29% in 2000 to 46% in 2045

2. Minority population growth is equivalent to 86% of total population growth during these 45 years

3. In 2025 the minority population will exceed the non – minority population in 5 states

These demographic trends are having a substantial impact on supplier diversity in two primary ways.

First, due to the large number of new minority and women-owned businesses, companies will be more likely to work with diverse suppliers in the future than today. Companies with strong supplier diversity programs will be better able to identify and develop these young companies into valuable supply relationships.

Second, the growth of minorities as a customer segment presents the opportunity to market the use of a diverse supply base for retail companies. Many consumer products companies are already targeting minority segments by focusing on the company’s use of minority suppliers.

With the projected increase in population share the minority share of US economy is expected to grow as well. By 2045 minority purchasing power may reach $4.3 trillion as compared to 1.3 trillion in 2000 or as high as $6.1 trillion if income parity were eliminated by 2045. Furthermore the minority population may contribute 44 percent or as much as 70% of the total increase of purchasing power from 2000 to 2045.

Now the multi trillion dollar businesses makes perfect sense to start working on supplier diversity program of an enterprise and connect with these minority communities through your strong supplier diversity program. Companies with a diverse supplier base stands to gain access to multi cultural markets.

Please feel free to comment or feedback. You can also write me on pmendki@gmail.com

In next few discussions, let’s look at the implementation of the supplier diversity program and subsequently supplier risk angle associated with it and its impact on supply chain.

Thanks
Prashant Mendki, PMP