Ahem. I beg to differ. In fact, the procurement teams that source, manage and evaluate suppliers do in fact have a great role to play in serving their customers, also known as taxpayers.

My recommendation to the procurement teams in federal agencies? The best way to start identifying opportunities to improve service delivery is by analyzing your spend. That’s right, spend analysis. With spend analysis, federal agencies get the visibility needed to:

• Identify opportunities to improve service – while reducing costs
• Prioritize needs
• Execute on a clear plan

It’s the perfect framework for answering the question: “How can we do better for our customers?”
Don’t buy it? Ok. Let’s talk then about the elephant in the room: the funding crisis that federal, state and local governments are facing in the current fiscal year, and will be facing in FY 2012. With the economy still in a slump tax revenues are sluggish at best. Before we take any action on raising the Federal debt ceiling, once again, I say: it’s time for government agencies at all levels to take page from the best practices of the world’s best run business and apply spend analysis to their own operations. It’s quite possibly the most effective way to identify areas where taxpayer dollars can be put to the best use and stretched just a little bit further.

Spend analysis starts with the most basic questions about the dollars being invested investing in acquiring what’s needed to get the job done – and get it done well.

• Who am I spending money with?
• How much am I spending with each party?
• How effective is that spend in achieving the agency mission?
• Where are my opportunities for saving more money?
• What can I do to get better service from my suppliers?

These strategies are working in government agencies around the world – to reduce costs, maintain and improve service to constituents and provide transparency to taxpayers. In the U.K., one agency started with spend analysis as the entry point for an e-procurement initiative and ultimately was able to consolidate its spend across multiple offices, significantly reducing the time required to source key categories, lowering costs, and improving service levels. While the majority of government spend is entitlement-based (SS, Medicare, etc), and not subject to spend analysis, it’s the balance where savings can be ultimately realized.

The bottom line is that whether you are a Fortune 500 company or a government agency, you simply can’t streamline service delivery and improve customer service without the supply chain – and the suppliers in that chain – who provide all of the goods and services needed for you to deliver what you promise to customers. If improving service isn’t your end game, and cutting costs is, you still can’t do without suppliers. And the quickest way to begin advancing either cause is with spend analysis. As we all know, you can’t measure – or improve – what you can’t see.

Paul Martyn

BravoSolution

Click below to learn more about how BravoSolution can help you get on the path to better service and greater savings with spend analysis.

Join supply chain management professionals from around the world in Barcelona to discover the key financial principles that influence and shape your supply chain. You’ll also learn new strategies for entering emerging markets, the role that business culture plays in forging collaborative relationships with suppliers and customers, and how information technology drives supply chain efficiency.

Mastering financial best practices and understanding how they impact your organization’s supply chain—and the ability to use them to your company’s advantage—will be the critical skill sets you will need to manage today’s unprecedented business challenges.

Keynote Speaker

Peter R. Williams, Vice President, Product Supply, Central and Eastern Europe, the Middle East and Africa (CEEMEA), Procter & Gamble

How to Win in Emerging Markets through Effective Supply Chain Management

Drawing upon his company’s experience in markets in Eastern Europe, the Middle East, and Africa, Peter Williams will talk about how we can make the difference between winning and losing through our approach to supply chain management. The scope of his presentation will include managing inbound flows, building local supply networks, and working in partnership with distributors and/or wholesalers. More details and registration information from CSCMP

It was a cold winter day in Minneapolis. The security guard at the gate warned me of frost bite walking from the parking lot to the corporate offices of a client. So, I scurried along with snow crunching under my boots.

I was also expecting a frosty introduction. Manufacturing, distribution and sourcing were at an impasse. I was walking into a conference room of waring factions. After years of functional excellence programs, they had run out of ways to find the money that the corporation needed for growth. They needed the next big idea. They needed to find dollars/euros and they were only surfacing pennies/ shillings through their traditional processes.

Need money? The common answer is to squeeze supply. For many companies, the supply chain is the de facto bank for the company. Through functional excellence and continuous improvement programs, companies generated cash to fuel growth. Supply chain became the place to go get cash. However, after years of harvesting the low-hanging fruit, the savings are getting tougher. For many, the well is effectively dry. Yes, companies can still wring pennies from their functional excellence programs; but they want bigger savings. To gain these, they need a new approach. They need to turn the supply chain over, lay it horizontally, and ask a different set of questions. This is what I did on that cold winter day in Minneapolis. Last week, the company called me to tell me that the advice had saved them 1 million on an operating budget of 15 million; and at the end of the week, I heard from a second company, that had taken my advice and designed horizontal processes from the outside-in, that had saved 18% of their operating budget. Today, I want to share this insight with you.

However, before you read on, get a stiff cup of coffee. The advice is counter-intuitive. For many, it is illogical; but it works.

Start by turning the Supply Chain on its Ear: The key to driving this type of break through performance is to turn the supply chain on its ear. Focus on the design of horizontal processes from the outside-in. Horizontal processes include margin management, contract management, demand shaping programs, working capital management, Sales and Operations Planning (S&OP), supplier development, and new product launch. Ask how to align these processes cross-functionally to gain greater value in the value chain. Ask what is possible? How many value chains there are, and what drives value in each?

Align goals: The next step is to step back and align metrics. Ask yourself the question of “If we reward sales on volume, marketing on market share, finance on minimal budget variance, manufacturing on asset utilization, and sourcing on the lowest cost of materials, will we ever achieve the lowest total cost?” The answer is no. Inherently, only 20% of companies measure and make trade-offs on TOTAL costs. Most measure functional costs with little power to trade-off costs across the vertical silos of source, make, deliver and sell. Have a laser focus on total costs, and taking the waste out of horizontal processes. Look at what drives variability and manual intervention in these horizontal processes and look at alignment of goals cross-functionally against what drives value against the business strategy.

Train for the Decathlon: In a Decathlon, there are ten events. The winner is judged by total performance, not by a single score in a single event. Because the athlete must do well in the four runs and six field events, he has little opportunity to perfect any one event. A decathlete trying to improve performance in one specific event is likely to deteriorate in another, because the physical demands of the various events are conflicting. His training is necessarily different as he strives to improve all techniques, gain strength without losing speed, and acquire the stamina to perform through a competition that lasts anywhere from 4 to 12 hours per day. In short, he trains to raise performance making trade-offs with the end in mind. A supply chain is like a decathlon. Companies need to do well in source, make, deliver, sell, innovation, customer service, order-to-cash, procure-to-pay, inventory management, and sustainability. The company that can both lower total costs and drive innovation is good at trade-offs. They understand that to win the race, that they may score 2nd or 3rd in these individual competitions to win the total score. And, that they will lose if they try to be the best in every event. As an analyst, I have participated in over 50 benchmarking exercises which taught me first hand that the company that tries to be the lowest cost in all functions ends up with higher total costs. (I know that this is counter-intuitive, but it is true.)

Like the decathalon, the supply chain score board is arbitrary. It must be determined. With a focus on horizontal processes, teams find that they must better define the goal. They need a scoreboard that rewards trade-offs. This raises the issue of “What is supply chain excellence?” What drives value in our value chain? The answer is not so facile.

Ask the Right Questions: As companies move from a laser focus on functional excellence to value chain management, there is a radical shift in what matters. Traditionally, the supply chain has been focused on:

> Right product, right place, right time
> On-time and in-full shipments
> The integrated end-to-end supply chain
> Lowest costs

As companies design horizontal systems, they find that these are not sufficient. These focus areas need to be redefined based on answering a higher-set of questions:

> What does global mean?
> What should be global & what should be regional in source, make, deliver, and sell processes?
> How many supply chains are there? And, what defines value for each?
> What does customer service mean?
> How do we define customer service to best support value-based outcomes?
> How do we best sense, shape and orchestrate demand? And, minimize the bullwhip affect?

Ask the tough questions. Put your supply chain on its ear. Change the focus from vertical to horizontal processes. I have seen the evidence, but I now feel even more strongly that there is gold there. Go get it! There are just TOO few ways to prime the pump to drive break through ideas these days.

Lora Cecere

To address each spend appropriately, we need to understand the dynamics that make each event complex. For starters, let’s look to another ‘multi-faceted’ puzzle; the Rubik’s Cube.

Invented in 1974 by Erno Rubik, Rubik’s Cube has puzzled generations around the world with its utter devilishness. The multi-faceted nature of the Rubik’s Cube makes for a good analogy to spend management and sourcing.

According to Wikipedia, a 3×3 Rubik’s Cube has over 43 quintillion starting positions. With the right combinatorial magic, any cube can be solved in 29 or fewer moves. Like spend management, the Rubik’s cube has an extraordinary number of possible starting positions but a logical, algorithm-based solving process can elegantly solve the problem with only minimal effort.

Complex Spend Management is another multi-faceted puzzle with even more complexity and ‘faces’ (internal and external to the buying organization) than Rubik’s famous cube. There are many factors which influence decision-making and like a Rubik’s Cube each factor of Complex Spend Management is related to others. For example, let’s look at the supplier ‘facing’ decision factors inherent in sourcing decisions; price, incumbency, risk and timing:

Successful sourcing managers find creative ways to drive financial results for their company. Effectively reducing costs means challenging internal stakeholders’ assumptions, preferences, and processes with scenario analysis that quantifies trade-off costs.

Buyers need to expand simple price analysis to quantify the total costs (landed, total cost of ownership) absorbed by the operational stakeholders. Complex Spend Management requires that buyers include the inventory and logistics impact in their financial analysis. Buyers are often challenged to explore a wider variety of options to redesign their supply plan while evaluating strategic considerations like ‘make versus buy’.

To address this explosion of complexity, many buying organizations have developed and maintain ‘big ass spreadsheets’ (BASS). These spreadsheets were often designed for a single project and then reused on subsequent complex spend events. This approach is suboptimal as it does not take into account the dynamic nature of Complex Spend Management. The BASS approach is akin to knowing the moves to solve one specific starting position of a Rubik’s cube and applying it to other starting positions – it simply does not solve the ‘new’ puzzle. In short, buyers need a more dynamic and flexible solution.

Fortunately, today’s optimization algorithms, like that of BravoSolution’s Collaborative Sourcing, provide buyers with a technology that identifies the optimal sourcing solution for each combination of supplier pricing, buyer preferences, business rules and risk factors. This allows buyers to define a problem (starting position) and work with the suppliers in a collaborative manner to propose solutions. The buyers then use optimization to determine which combination of supplier proposals is best.

In essence, optimization technology provides the buyer with the ability to increase collaboration with suppliers and solve any starting position of a Rubik’s Cube buy simply pressing the “Solve Now” button.

Citing statistics that show a company’s supply chain performance and production performance have a 56% impact on cost of goods sold (COGS) and a 35% impact on sales, general and administration (SG&A) expenses, Sal Mistry, senior consultant, and Francisco Aguilera Iborra, president, offer the following strategies to enrich cash flow through EBITDA optimization:” How to Optimize Your Supply Chain to Improve Cashflow