A couple of years ago, I posted on Google outsourcing trends. Dave Stephens then used the tool to weigh-in on a spend terminology bun-fight between the two blogging heavy-weights, Jason Busch and Tim Minahan (This was in the days before the Doctor was in the house).

Now, Google has updated their tool, allowing regional views of search term data. Below is the normalised number of searches for ‘Outsourcing’ since 2004.

Outsourcing Search Frequency

The term has continued to lose ground over the past two years and is now at less than 1/4 of its normalised frequency than at its height in 2003/4.

The regional distribution has a few surprises until one gains an understanding of the data. Not surprising is India’s presence at the top of the list. More surprising is that Kenya and Mauritius are in second and third respectively. It is important to understand that the ranking shows the relative importance of the search term ‘Outsourcing’ within the search terms originating from each country and, accordingly, the list will contain aspirational contenders in addition to champions. The absence of Eastern Europe and China from the top 10 provides further evidence that the list appears to reflect myopic focus rather than ability to deliver.

Regional Distribution of 'Outsourcing' Searches

One further interesting point is that the term ‘Outsorsing’ is on the list of search terms rising in importance – Outsourcing company search-engine-optimisers take note!

And what of the smackdown? I’m sorry to report to Jason that ‘Spend Management’ has gone nowhere over the past two years although ‘Supply Management’ has also taken a bit of a beating.

I wonder what terms people are using when they search for procurement-related topics.

BLM—Buzzword Lifecycle Management

The information technology (IT) industry is alive with buzzwords (BW). The management of BW represents a significant area for improvement for both the BW users (BU) (for example, vendors, analysts, and consultants), BW consumers (BC) (mostly end-users), and BW fellow travelers (BFT) (for example, the media). BW lifecycle management (BLM) is a proven discipline being applied to this crying need within the software industry.

Even more so than IT, the language used to describe procurement activities is astonishingly fractured. Some examples:

1) the words purchasing, procurement, strategic sourcing, sourcing, etc can each be paired with word "department" to describe the same function within an organisation.

2) the great spend management / supply management debate of 2006.

3) an organisation I observed recently that, whilst changing the name of its procurement department from "Strategic Sourcing" to "Sourcing", was attempting to convince its employees that they still needed to think strategically.

I suspect we play the game of musical names because procurement is often seen by outsiders as a somewhat dirty concept and once a particular descriptor becomes too closely associated with the act of "buying" then the next generation of terminology springs up.

If this is to change, it is incumbent on us to stand up, be proud of what we do, and claim our ground – regardless of what we call it.

Line56.com: Service Spending Opportunity

Vendor Neutrality — The Key to Sustainable ProfitAchieving initial and ongoing cost reductions requires optimizing every requisition — specifying the services needed, distributing the requisition to the appropriate pre-qualified suppliers, and allowing them to bid competitively for the opportunity. Many enterprises today have semi-exclusive arrangements for some services that hamper their ability to attain the best services for the best price on every requisition.

In addition, the high-quality vendors welcome participating in a vendor-neutral marketplace since they gain substantial benefits when they compete on a level playing field — reduced sales expenses, lower bidding costs, faster payment with far fewer disputes, and increased revenue through receiving all requisitions.

Technorati Tags: vendor management, contract management, procurement, sourcing, panel

“What we found is that HPOs share five characteristics. They set ambitious targets and consistently and continuously achieve those objectives. They display a strong sense of purpose through shared values both inside (among employees) and outside the organization (among customers, suppliers, and other stakeholders). They have a strategic focus and alignment so that employees know how they are contributing to the results of the organization. They have the agility to adapt to changing circumstances quickly. And, finally, they have a common and shared business model throughout the organization.”

Five Keys to a High Performance Team

This article is an example of the tremendous amount of good research currently being conducted by the business process improvement community that can be leveraged to design performance metrics for the supply chain. Below is an abridgment of the 5 page article:

“The Mission: Set Ambitious Targets

“Many organizations claim that the primary function of a strategy is to describe how to maximize shareholder value. We feel that this is not fundamental enough. Strategies come and go over time. In high-performance organizations, the fundamental performance drivers are described by the mission statement. Corporate strategy is what links the mission statement with the personal objectives followed by employees.

…

“Pinpoint Shared Values

“Every organization has values, whether they’re spelled out or implicit. “Values” are not soft. New employees that join an organization and do not fit into its value system usually depart soon afterward. If the employees and management of an organization do not share the same values, every change proposed within the organization will be heavily debated and implementation will require significant effort. Even when values are agreed upon internally, if those values (i.e., what binds the organization together) do not align with customers’ values (i.e., what attracts customers to the company), the organization will struggle to innovate successfully. In HPOs, managers and employees agree on the company’s internal values, and those internal values match customers’ values.

…

“How To Execute

“The execution of a good strategy is at least as important as having that strategy in the first place. A company with no strategy but excellent execution may, in fact, be better off than a company with a good strategy that is badly implemented. Therefore, the first step in developing alignment is to put in place a measurement system to provide feedback on whether a strategy is working. There are many types of measurement systems; each has advantages and challenges. Regardless of which a company chooses, implementing it at the executive level and collecting feedback is not, by itself, enough to create focus and alignment. The measurement system has to be cascaded deep into the organization.

“Every company has two management loops. The first (the inner loop in exhibit 4, below) deals with operational, day-to-day, short-term management issues. Its performance indicators are known; typically they involve the speed, cost, and quality of processes. These metrics are monitored consistently. The second loop of management (the outer loop in exhibit 4) is more hands-off. New targets are determined, and different performance indicators may emerge as the environment changes or as ways to further optimize processes from the first loop become clearer. The problem within many companies is that the two loops of management are often disconnected. Each has its own set of performance indicators, and those metrics are only implicitly linked. Operational management, which is responsible for the first loop, may be unaware of the issues in the second loop, and vice versa.

“In high-performance organizations, however, the two loops are aligned. Corporate strategy is not only translated into high-level plans, but also linked to first-loop indicators. And these monitoring indicators are, in turn, explicitly linked to the feedback process. HPOs also have trigger-based processes that invoke the loops. If the organization’s strategy changes, new targets and process optimizations are communicated to the people responsible for the first loop of management so that they can update their management methods. If changes in the environment are picked up by the first loop, these immediately invoke the second loop of management to respond quickly. The different people responsible for the two loops communicate, and executives can see developments registered by the operational first loop in the context of the slower-moving — but further-reaching — second management loop. This whole process is part of an emerging trend called “business activity monitoring.”

…

“Data and Process Standardization

“For organizations that seek to become HPOs, it’s not enough to introduce an aligned strategy, define the mission statement of the organization, and identify the company’s values. Processes must also be efficient. Limited resources must be leveraged to maximize their value. At the very least, the organization must strive to become more efficient structurally than the competition. This is possible only if best practices, processes, and systems are recognized throughout the organization and if every part of the company follows a common business model. Very few companies realize this ideal.

“Management processes and systems can be standardized only if they share data and performance indicators. Most organizations are stymied in their standardization efforts because they have trouble agreeing on definitions for the data that underlies the performance indicators.

…

“Agility Is Key

“An abundance of research suggests that most organizations fail at executing strategies designed to improve their position in the market because the external environment changes faster than strategies can be devised. High-performance organizations achieve a high level of agility so that they can identify change and respond optimally — or, even better, set the pace for change within their industry.

“There are four primary ways to create agility in an organization. One is by centralizing processes, data, and systems company-wide. This approach is usually highly IT-centric, but it ensures that changes need to be executed only once. This speeds up change processes and eliminates the chances for error. A second method for improving agility is through smart sourcing. Standardizing as many product components as possible and using subcontractors to produce and deliver those components can lead to a dramatic decrease in new-product-development time, so companies can respond quickly to market trends. A third model for improving agility is mastering the channel, as Wal-Mart is well-known for doing. The concept of “just-in-time inventory” is crucial here. If the organization monitors the complete value chain, it can react instantly to changing buying patterns. Products that sell faster than others can be restocked immediately. This approach also reduces waste of resources on excess capacity. Finally, project-based management can improve an organization’s agility. If corporate functions such as HR can be fluidly deployed as needed by strategic initiatives, rather than being housed within rigid departmental structures, teams can be formed and dissolved more rapidly to pounce on opportunities or respond to threats.

Their strategy to achieve this ROI is as follows:

“World-class procurement leaders establish their organization as a strategic function, one that is fully integrated with other relevant parts of the business,” states Hackett procurement practice leader Christopher S. Sawchuk. “They take a wider view, understanding the implications of procurement policy for suppliers, internal and external customers, and shareholders. Their staffs lead crossfunctional teams to establish which goods and services are most beneficial to the company, taking a broad array of factors into account, not just purchase price.”

To retain and keep staff with the skills to perform these functions, world class procurement organisations typically pay 41% more than other organisations and have far lower ratios of clerical staff to professional staff.

1. Does each entry identify the date service was rendered, the individual who rendered the service, the individual’s hourly rate and position (partner, associate, paralegal, etc.) an understandable description of the particular service rendered, the amount of time (expressed in tenths of an hour) and the corresponding dollar charge for that time?
2. Do descriptions of service list each task separately? If several activities by one timekeeper on one date are combined in a single entry (example: “prepare for, travel to, attend and summarize deposition” 5.3 hours) it will be difficult to evaluate whether or not the time for each task is appropriate.
3. Do descriptions of service describe with particularity the activity in which the timekeeper was engaged or are they vague and imprecise, such as “attention to discovery”?
4. Are the descriptions of service consistent? Is the same activity described in more than one way, depending upon the date or the timekeeper (example: “draft motion to compel plaintiff’s production of construction records;” “work on construction records issue”)?
5. Do the descriptions of service include initials, abbreviations, names or case issues with which you are not familiar (example: “meeting with GJT re indemnification”)?
6. Do the descriptions of service refer to activities you did not authorize (example: “review report of defendant’s psychiatric expert” when you did not authorize retention of the expert)?
7. Do the descriptions of service refer to motions made without your prior approval?
8. Do the descriptions of service refer to activities that are unnecessary or premature (example: preparing page and line summaries of depositions when settlement is likely and no trial date has been set)?
9. Are there frequent intraoffice conferences among two or more timekeepers, each of whom has billed for the time?
10. Have two or more timekeepers billed for attending the same deposition or proceeding?
11. Does the bill contain a sub-total (hours and dollars) for each timekeeper?
12. Is the total number of timekeepers consistent with the size of the case (for example: it is the unusually large and complex case that will require five or more timekeepers)?
13. Are all of the timekeepers listed in the current bill the same as the timekeepers listed in the last bill? If some names no longer appear or others appear for the first time, why has staffing changed?
14. Are work assignments among timekeepers assigned in such a way that there is overlap or redundancy (for example: two issues to be researched, each of which requires review of the same file or records)?
15. Do descriptions of services include tasks that you or someone in your office has done or could do in this case?
16. Are the hourly rates of each timekeeper listed in the current bill the same hourly rates that appeared in the last bill? If rates are higher, was there an advance written request for and written approval of the increase?
17. Are the hourly rates of each timekeeper consistent with the individual’s experience, position and expertise?
18. Are the tasks appropriate to the experience, position and expertise of the timekeeper (example: document summaries prepared by partners vs. paralegals)?
19. Is the amount of time billed for each timekeeper category (partner, associate, paralegal) disproportionate to the complexity or magnitude of the case?
20. Do disbursements include charges for word processing or secretarial/clerical time?
21. Are disbursements sub-totaled by category (Westlaw, Lexis, messengers, photocopies, interpreters, etc.)?
22. Is the rate and basis of each disbursement reported (example: 869 copies @.10 each = $86.90)?
23. Are the services and disbursements of outside vendors consistent with your guidelines?
24. Are any disbursements billed at greater than actual cost?
25. If allocation of time or disbursements is appropriate (among multiple parties or multiple files) is the amount reported the correct proportionate share?

1. Audit internal contract management processes, systems, and controls before investing in a contract management solution.
2. Create a compelling business case with both benefit and crisis.
3. Ensure proper executive and stakeholder support for both contract management initiative and automation investment.
4. Define detailed functional requirements for a contract management solution –
   and stick to them.
5. Dedicate and empower a contract management program champion.
6. Establish a contract management governance council to ensure support from
   functional and business unit leaders.
7. Clearly define and communicate procedures and protocols for the complete contracting and contract administration.
8. Where possible, use templates to streamline contracting cycles, minimize risk,
   and maximize compliance.
9. Measure program performance and market results.
10. Identify areas for continuous improvement.

Aberdeen identified the following business drivers behind contract management initiatives:

• Uncertain global economic conditions and continued pressures to reduce costs and improve financial and operational performance.
• New regulations – such as the Sarbanes Oxley Act – require companies to establish and document business controls, procedures for tracking and reporting material business information, procedures and systems for ensuring compliance and auditing.
• Globalization is increasing the types and complexity of contracts as well as the risks inherent in trading relationships.
• Outsourcing, licensing, and channel agreements are growing both in number and complexity.
• Insufficient human resources and systems infrastructure to effectively locate, execute, and optimize contract performance.
• Increased availability of packaged enterprise software applications designed to automate and improve contracting, contract administration, and contract compliance and analysis processes.

Aberdeen also outlined the components of a compelling business case:

“Most enterprises have gross misconceptions about their contract management competence. And in most cases, enterprise executives fail to understand the magnitude and impact insufficient contract management is having on their company’s financial and operational performance. An internal audit helps bring these issues to light. However, securing sufficient resources and budget for improving contract management operations will require development of a well-defined business case that accomplishes the following:

• Defines and baselines existing contract management performance, including both strengths and weaknesses the internal audit uncovered in the areas process, organization, knowledge/visibility, technology, and performance metrics.
• Quantifies the current “costs” of underperforming areas of your contract management program. Such costs include the costs of missed contract milestones (e.g., overpayment, penalties, inaccurate prices, missed revenue accelerators); costs of risky contract language (e.g., elongated payment cycles on customer contracts, short payment cycles on supply contracts, evergreen renewals, inadequate intellectual property (IP) or brand protection, maverick contracts); costs of inefficient processes and controls (e.g., long contracting cycles; lagging contract execution, missed renewals, and regulatory violations and fines).
• Details a blueprint for contract management improvements, including prioritization and timeline of actions, resource, systems, and budgetary requirements, protocols and governance requirements.
• Estimates the financial and operational benefits of executing such improvements. Such calculations can be developed by leveraging benchmark information from third-party sources, such as industry associations, such as the IACCM, industry analysts, like the Aberdeen Group, and contract lifecycle management solution providers.

Most enterprises are critically dependent on a wide range of suppliers: they are as integral a component of business success as any internal resource. But there is a significant difference between the investment that a business is prepared to make in managing internal resources and the investment the same business is prepared to make in managing suppliers. Internal resources especially staff have defined objectives, regular appraisals, career plans, mentors and an entire department (HR) dedicated to maximizing the value derived from them. The whole organization chart exists to show exactly who is responsible for every single member of staff.

Contrast this with the way in which most enterprises fail to manage their suppliers. For many suppliers, objectives are not set, or not monitored. Performance appraisals happen haphazardly. Perversely, account plans do exist but they are generally created by the supplier, with little insight or understanding of the real needs of the customers. Having a supplier with an account plan is like having a restaurant decide when you will visit and what you will order not exactly customer-centric, is it?

Of course, many organizations do manage some of their relationships effectively. Retailers generally manage most of their suppliers extremely tightly. Semiconductor manufacturers tend to work very closely with their equipment suppliers, and telecommunications service providers work closely with their switch equipment providers. But these tend to be the exceptions rather than the rule and even inside these businesses, there will be suppliers that are not managed at all.

Does it matter if suppliers are not managed? If it has always been like this, why can’t it carry on being like this? Well, perhaps for some suppliers it doesn’t matter very much. Many are transactional suppliers they provide goods or services in ready supply, with low impact on their customers’ value chain. They should be appraised periodically, but the buying organization does not need to incur significant management overhead with them. In fact, some companies have started to use a third party to manage them, by exploiting business process outsourcing services for procurement.

However, business models in most industry sectors are increasingly dependent on non-transactional suppliers. These are providers of goods or services with unique characteristics that can contribute to their customers’ value chain, and whose customers would experience severe and expensive disruption in the event of deterioration in their suppliers’ performance. It is this increasing dependence on suppliers that makes the traditional laissez faire approach dangerous, and has caused leading enterprises to start investing in vendor management.

Vendor management is the discipline that ensures the enterprise buying goods and services actively manages its relationships with strategic suppliers. A strategic supplier generally meets two key criteria: it delivers high value to the business, and it would be difficult and disruptive to the business to switch to an alternative supplier. Vendor management is a young discipline a “discovery” discipline. It is so young that companies engaging with it have to innovate the processes, systems, organization and culture for themselves, since there is little best practice that they can use as models. However, Gartner research finds the following common characteristics of vendor management programs.

Vendor managers need to be senior, experienced business managers. Companies are likely to be spending significant sums of money with strategic suppliers. This means that the supplier will be using a senior account executive as its representative. It is essential that the vendor manager “punches in the same weight division” as his or her counterpart. If the buyer uses an inexperienced or junior manager in the vendor management role, the supplier’s account executive will simply bamboozle and bypass them.

Vendor managers report to the line of business serviced by the supplier. This is not always the case in some instances the vendor managers report to the head of procurement, with dotted line reporting to the serviced line of business. However, it is in the interests of the business manager to have close and continuous connection with the vendor manager. For example, if a consumer electronics company is using a contract manufacturer, the vendor manager for this supplier will report to the head of manufacturing or operations, not to the head of procurement. This tension between the procurement team and the line of business managers is clearly a significant issue that can inhibit the development of vendor management as a discipline. The most effective model sees the vendor managers report to the serviced line of business but, at the same time, the central procurement function facilitates a virtual team of all the vendor managers, helping to define effective processes and behaviors.

There are no common key performance indicators for vendor managers. Most vendor managers have been appointed as troubleshooters for existing relationships. Under these circumstances, the brief has been to resolve specific problems in a dysfunctional relationship, and then to start creating the long-term processes that will keep the relationship healthy. The difficulty of articulating clearly measurable key performance indicators reinforces the need to appoint trusted senior managers into these roles. Despite the difficulty of creating measurable key performance indicators, there are several objectives for vendor managers that appear frequently across many categories of suppliers.

Developing a detailed understanding of the dynamics of the market the supplier operates in. The supplier cannot be managed as though the relationship existed in a vacuum. The supplier is critically influenced by the dynamics of their market sector. The vendor manager needs to have a very clear view of the total business performance of the supplier to understand the comparative importance of the specific relationship. For example, if the engagement becomes nonstrategic to the supplier because of a change in emphasis in their market strategy, it is critical that the vendor manager understands that shift in the dynamic of the relationship.

Understanding the totality of the engagement across all buying centers in the enterprise. All too often with strategic suppliers there will be multiple touch points in the buying business. The vendor manager needs to develop a clear understanding of all the current and potential work being undertaken with the supplier.

Creating a joint account plan. It makes no sense for the supplier to develop an account plan without the full participation of the customer. Equally, it makes no sense for the customer to deny a strategic supplier key insights into the business plan. The vendor manager must create the appropriate framework of trust that will enable a joint account plan to be developed: one that recognizes the needs of the buying organization are paramount, while permitting the supplier to derive appropriate profit from the relationship.

Obtaining clear insights into the supplier’s development plans. In the same way that the customer needs to expose plans to the supplier to facilitate planning, a strategic supplier needs to unveil its strategic plans to its customers. Whether the supplier is opening a new factory, creating a new product line, entering new markets or undertaking any strategic initiative, the vendor manager should ensure that the strategic customer has early knowledge and, where appropriate, first refusal on access to the innovations and developments.

Influencing the supplier’s R&D spend. The relationship is truly strategic when the supplier uses the customer’s needs to influence its R&D.