• 21:28:49: Finextra: ING launches pension peer comparison Web tool: http://bit.ly/lKc7w
• 21:26:00: There’s unacknowledged cross-over between marketing and procurement. INGs app shares common features with supplier comparison apps.

Corporate sustainability reporting

• 22:01:14: Corporate Sustainability Reporting: The Executive Disconnect But there’s a major gap between understanding and action, according to a survey released this week. http://bit.ly/3Y55HP
• 22:03:28: Survey says 90% executives say sustainability reporting is important. 50% say they do it. My bet: 10% actually do it. http://bit.ly/3Y55HP

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Apple asked how few controls do we really need to operate an mp3 player and the iPod was born. Asus asked what does a user really need to surf the net and the eee pc burst onto the market. Oztent asked does a car camper really need their tent to fit into a tiny bag and the RV tent is the result.

When you are designing your processes and systems, ask yourself what you are trying to accomplish and what is the least functionality required to accomplish that objective. Back to the iPod example, an mp3 player needs to play mp3s so it needs a play button. You may also need to pause your mp3 player and scroll through your music collection. Apple asked “Why does that require more than one button?”

Likewise, with procurement systems, if you’re designing a procurement system, does it need anything more than a way of delivering approved requisitions to a supplier? Probably. But how little more can you get away with?

The theory is that the additional effort that directed to managing the process on an ongoing basis is more than compensated for by the reduction in time and effort required to get the project off the ground and the reduction in the risk of getting it wrong and having to write off the entire project.

But it is important to keep in mind that any methodology that you adopt must be continuously evaluated for suitability to your company’s culture.

Attivio is a strong supporter of agile development yet they are quite willing to divert from pure agile development to suit their circumstances.

We all need to be as flexible – we need to keep abreast of the cutting edge thinking in procurement but we also need to adopt it to fit our corporate culture. But, like the Attivio quote below, we need to not be ashamed of diverging, we need to be proud of it and, if it works, to view it as ‘best-practice’ in our corporate context.

Note: While many of our approaches aren’t “pure” Agile, we believe we’ve created a best- practices process that embodies the “spirit” of Agile in that it has been developed iteratively, with the constant input of the engineering team based on key Agile principles.

via Agile in Practice: Managing Requirements.

My working theory is that the designers of performance measurement initiatives are too ambitious at the outset and set up measurements that never get used and therefore eventually stop getting collected and reported.

This scenario is analogous to building features into software that never get used.

To combat the tendency to over-design, techniques such as agile development are gaining acceptance in the software development community and serve as excellent models to assist us in developing better performance measurement systems.

One of the mantras of the agile methodology is to write unit tests for each component developed. This ensures that every single component built actually works before you attempt to put them together.

A recent article reports that a study of software development projects contained the following finding:

Key message: “measuring a [SIC] over 20 projects: if you have a large number of unit tests your code will be an order of magnitude less complex.”

The key message for designers of performance measurement systems is to start small when developing and implementing measurements, test them with your audience to ensure they serve business needs, and then move on to the next set of measurements.

The approach may seem pedestrian but you’ll be further ahead a year down the road.

The Maldives are poised to be one of the first countries submerged by rising seas and are looking to buy a new country. In the President’s words,

“We can do nothing to stop climate change on our own so we have to buy land elsewhere”

Could this be the first of many such roles? The Economist thinks so. They think that now may be the time to pick up a bargain and suggest that Iceland may be going cheap.

And who better than a procurement professional to lead the sourcing exercise. Anyone who thinks the creation of Israel had unresolved change management issues has never transitioned in a new ERP vendor.

If we really want to demonstrate procurement leadership, we’ll take this opportunity not just to deliver value through negotiating deals but through reducing waste across the value chain. When the question is asked “How are we going to reduce costs?” and heads swivel towards the procurement manager; will we talk about reducing demand, minimising transaction costs and reducing supplier margins to competitive levels? Or will we just talk about screwing down our suppliers? The choice is ours.

This is not as straightforward as it sounds because the skill with which one has purchased a product or service can only be judged relative to the price others are willing to pay. However, if I were an incumbent indirect supplier with significant market share, I would use my own customer base to provide the evidence my customers need to justify their decision to re-contract with me for another term and I’d willingly give up my ability to differentially set margins across my similar-margined mid-tier clients in the hope it would derail some of the tenders I’d otherwise be forced to participate in (assuming of course that the bulk of my profit did not arise from differentially pricing similar clients).

To do this, I’d meet with all of my mid-tier clients and, with their permission, talk about my pricing. I’d explain that I very much want to charge them all the same low price but particular idiosyncrasies in their buying patterns mean I can’t. I’d tell each of them what they can do to their own operations to allow me to service them at a lower cost. I’d summarise this in a document for each procurement manager and when she is asked to justify why she is re-contracting with me, I’d recommend that she say to her CFO, “We have been dealing with this supplier for 5 years and currently have no service issues. Our users report that they are happy with the service they are provided. I have met with the procurement managers of 5 of their other mid-tier clients and, given our idiosyncrasies, we are paying the same rates for their services as they are (and one of them took the supplier to market last year). Based on this, I recommend we focus our resources on a spend category we are less confident we are buying well.”

1. We should be making better use of tendering platforms (which I won’t discuss as there are others in the blogging world who cover this with far more authority) and
2. we far too often take suppliers to tender when we could achieve a similar result with a few rounds of negotiation.

But to negotiate well, we need information. Companies like the The Buying Triangle are on the right track in providing this information to their corporate clients. I predict a bright future for organisations who provide services to boost the negotiating throughput and effectiveness of organisations.

For incumbent indirect suppliers to companies who are not using services such as the Buying Triangle, I believe there is scope for the suppliers to better service their clients by providing relevant, high veracity, purchasing information. Perhaps they can establish a Lone Purchasing Organisation.

Listed below are the activities and metrics. Note that your team’s metrics will differ from those listed below based on the behaviour you are attempting to drive within your team, your organisation, and your supply base.

1. Spend analysis: Enriched addressable spend mapped to the organisational hierarchy (as a percentage of total addressable spend)
2. Sourcing: Savings, total and savings divided by the sum of procurement staff salaries.
3. Ordering: Spend through Procurement-controlled channels (e.g. e-catalogues) divided by the sum of P2P staff salaries
4. Deliveries: Metric: Average elapsed time from supplier dispatch to end user receipt
5. Invoicing and payment: Metric: Percentage of invoices paid on the date due (or before with negotiated discount)
6. Contract administration: Metric: Percentage of total addressable spend under contract
7. Supplier management: Metric: Spend covered by suppliers providing simple cost and SLA reporting back to the procurement department divided by the sum of supplier management staff salaries.

You’ll have noticed that some of the metrics are ratios between the objective and the cost of staff. I find this useful in focusing staff not on the limitations of our resourcing but on the efficiency of the resources we do have, and to constantly search for ways to make themselves more efficient.

A couple of months ago I posted on a little experiment I conducted on sourcing music based on stated requirements. In the study I analysed the appropriateness of songs found by Pandora compared to songs played by Yahoo Music given the same requirements i.e. songs liked by a Dandy Warhols fan. I concluded that Pandora found more suitable music than Yahoo.

In my opinion, improving techniques to find vendors is not the future of sourcing. Reflecting on the best examples of sourcing I’ve seen over the past few years, I realised that they all involve the purchaser and the vendor creating a more efficient relationship structure rather than a purchaser simply finding a new vendor.

An example of a more efficient relationship structure is the vendor and purchaser using a novel distribution strategy that creates operational efficiencies for the vendor and a competitive advantage for the purchaser; or the vendor and purchaser working together to impact demand rather than unit cost. The critical feature of the more efficient relationship structure is that it is created by the purchaser contributing internal knowledge about such things as its purchasing patterns, logistical challenges and payment requirements and the vendor contributing its market knowledge to produce an item or service that perfectly fits the purchaser’s needs and the vendor’s ability to service those needs.

The future of sourcing will involve good purchasers using better techniques to find good vendors but it will also involve good purchasers and vendors creating great new products and services. As Time Magazine says of Rogers and Hammerstein “Each had already made his mark — but as collaborators they created musical theater that enchanted audiences and redefined the art form”.

I wonder what technology will enable this type of collaborative innovation?