StrategicSourcing2.0

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1 StrategicSourcing2.0

StrategicSourcing2.0byJohnBrennan

InnovativeAnalytics&TrainingLLC|www.innovativeanalytics.comExecutiveSummary.Globalsourcingexecutivesfacemorechallengesthanever,andtheglobalsourcingenvironmentwillonlygrowmorecomplex. Thefirmsthatsurvivethenextcenturywilldosobecausetheymakekey

investmentsinbuildingthenextgenerationofstrategicsourcingcapabilities. StrategicSourcing2.0is

aboutautomatingnetworksandanalysisthatismorerigorous. Globalsourcingexecutivescanincrease

theireffectivenessbyautomatingmanyaspectsofthesourcinglifecycleandbyrelyingonacoregroup

ofanalystswhofocusoncreatingtheinformationreportingandanalysisnecessaryforenterprise

awareness. Presentedbelowarethelifecycleandcapabilitiesforautomatingandanalysis.SourceDiscoveryWebcrawlingandcrowdsourcingprovideaffordable,tailoredinformationtoconstantlyupdatethepictureofrisks,supplierstatus,newentrantsandcompetitiveintelligence.

SourceEvaluationMulticulturalexpertnetworksandasupplierevaluationmethodologycanimprovethelikelihoodofsuccessfulsupplierrelationships.

SourceNetworkManagementMultienterprisesourcingnetworks,adeliberatesensornetwork,andacommandcentercanprovidenearrealtimeinsightonallaspectsofthesourcingnetwork;hosted

auctionservicescanprovidedynamicpricingforsourceacquisitionsandassetdisposal.

SourcingAnalyticsNearrealtimeinsightintosubordinatesourcingorganizationsandprogramscanonlybeachievedwithacustomreportingcapability. Ingeneral,adatamartmayalsoberequiredto

store,manipulateandmanagetheinformationnecessaryforsourcinganalytics.

SourcingResilienceThecapabilitiesandinformationtomanagemultipleissuesliketheacceptablelevelsofredundancyinthenetwork,acceptablesecurity,insightintobusiness,networkandsupplier

risks,rapidinsightandresponseprotocolsfordisruptions,andcontinuityofsourcingplanningwith

rehearsals/exercises.

Sophisticatedanalysisandemergingtechnologiesareintegraltodesigningandimplementingaglobal

sourcingorganization,whetherforinvestmentsorkeysupplierrelationships.

GeneralElectric

(GE)

recently

assigned

aresearch

scientist

the

full

time

job

of

studying

sources

of

materialsthatarecriticaltoGE,whichisinvestingheavilyinbatterytechnologiesfortransportation

andgridstorage.GEwascaught"behindthecurve"whenonematerialusedinitsaircraftengines

shotupinprice,soitisnowlookingforother"pinchpoints,"saidMarkLittle,directorofGE's

researchlabs. Source:Electriccarracecouldstrainlithiumbatterysupply,byMartinLaMonica,

October31,2008,CNet'sGreenTechWebsite.


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StrategicSourcing2.0byJohnBrennan

InnovativeAnalytics&TrainingLLC|www.innovativeanalytics.comIntroduction. Today,withtheemergingdisciplinesofoutsourcingandstrategicsourcing,companieshave

begun

to

view

the

inputs

of

their

business

modelthe

supplies

and

suppliersas

integral

components. Infact,manycompaniesaredevelopingsourcingasacorecompetency. Newmethodsin

sourcinginvolvesophisticatedanalysisandemergingtechnologieslikemultienterprisesupplychain

managementnetworks,reverseauctionsandactivedatacollectionprogramsthatautomatethesearch

forsuppliers,productsandpartners. Sourcingalsorequiresdeliberateandprudentriskplanningto

ensuretheresilienceofthesourcingnetworks. Thisplanningmustrelyonaconstantlyupdatedpicture

oftherisks,thevalueandthelocationofsuppliesandproductsinthesupplychain(tolocalizeand

quantifythepotentialrisks).

Globalsourcingexecutivesfacemorechallengesthanever,andtheglobalsourcingenvironmentwill

onlygrowmorecomplex. Thefirmsthatsurvivethenextcenturywilldosobecausetheymakekey

investmentsin

building

the

next

generation

of

strategic

sourcing

capabilities.

Strategic

Sourcing

2.0

is

aboutautomatingnetworksandanalysisthatismorerigorous. Globalsourcingexecutivescanincrease

theireffectivenessbyautomatingmanyaspectsofthesourcinglifecycleandbyrelyingonacoregroup

ofanalystswhofocusoncreatingtheinformationreportingandanalysisnecessaryforenterprise

awareness.ItistimeforcompaniestostartbuildingStrategicSourcing2.0. Thismeansstrategicsourcingleaders

mustintegratethecoredimensionsofsourcing(information,peopleandtraining,technologyand

infrastructure)acrossthelifecycleofsourcing(discovery,evaluation,management,analyticsand

resilience). Firmsmustbegintodevelopcapabilitiesformultienterprisesituationsacrossaglobalscale.

Thispaperdetailsthecapabilitiesneededtosolveglobalsourcingchallenges.Thecapabilitiesare

identifiedin

the

Strategic

Sourcing

2.0

Framework

below.

StrategicSourcing2.0FrameworkThecapabilitiesanddimensionsofthenexterainstrategicsourcing.Dimensions:Information,PeopleandTraining,TechnologyandInfrastructure


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SourceDiscovery. Identifyingtherightpartners,vendorsandsuppliersisadynamicandevergrowingchallenge. Leadingaportfolioofrelatedbusinessesaddsothervariablestothechallenge,assourcing

executivestrytocarefullybalancethenumerousinternalandexternalrelationships. Current,objective

informationaboutexistingandpotentialsuppliersarmssourcingexecutiveswiththedatatosupportthe

innumerabledecisionsnecessaryeachweekandmonth. Globalsourcingexecutivesmustbegin

implementinganinformationgathering,analysisandreportingprogramfocusedonidentifying,

qualifyingandmonitoringsuppliers. Therearetwocompellingtechniquestodaytoconsider:Web

crawlingprogramsandcrowdsourcing.1

WebCrawling.Webcrawlingprogramstakeadvantageofthereadilyavailableinformationpostedon

theInternet,whetherthroughofficialcompanyWebsites,newsoutlets,orblogsanddiscussionforums

managedbynongovernmentalorganizations(NGO)andprivatecitizens.Webcrawlingprograms

involvethefollowingsteps:

Identifyingtargetsites Designingandsettingcontenttargetsandthresholds Filteringandscoringsitesandcontent Humanreviewandconfirmationofthecontent Reportingandmonitoring

TwoexamplesillustratetheutilityofWebcrawling:

AFortune100consumerpackagedgoodscompanywasconcernedaboutpublicperceptionssurroundingfood

additivesandsweetenersusedinorattributedtotheirproduct.AnalystsusedWebcrawling,linkand

geospatialanalysistoolsandtechniquestoidentifyandrankorderthepublicperceptionsurroundingfood

additivesandsweetenersofinterest. NowtheclienthasaWebcrawlingandmonitoringprogramthat

surveysaseriesofNGOWebsitesandblogstodeterminewhentheybegindiscussingknownorpotential

contaminants.The

system

is

flagged

to

warn

the

company

ifthe

content

relates

to

the

ingredients

and

sourcesusedinitsmanufacturingoperations.AcompanylikeMattelwouldhavethiscapabilityusefulbefore

thepublicfuroroverleadpaintusedintheproductionofitstoys.

AFortune100,multinationalpetrochemicalcompanyhasintegratedWebcrawlingintoitsglobalrisk

assessmentcenters.Specifically,theprogramcontinuouslymonitorsandharvestsinformationfromtheopen

Internettoassistintheduediligenceassessmentprocesssurroundingnewbusinessdealsandtoidentifyearly

indicatorsandwarningsofeventsofinterestincountriesandlocationswherethecompanyconductsbusiness.

TheseexamplesdemonstratethepowerofWebcrawlinginitsabilitytosystematicallymonitorthe

informationandreportingabouta)acompany,b)itssuppliersandpartners,c)itsproductsandkey

employees,d)

the

regions

the

company

operates

in

and

e)

potential

new

suppliers,

partners

and

products. Thekeyistoidentifycontentthresholdsandtouseascoringalgorithminordertoproperly

tunethecrawlingandmonitoringprogramtoreducefalsepositives. Thebeneficialresultisitextends

theawarenessofacompanytoaglobaldimension.

1JeffHowecoinedcrowdsourcingina2006WIREDmagazinearticle.Theoriginalarticleislocatedonlineat

http://www.wired.com/wired/archive/14.06/crowds.html.


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Crowdsourcing.Crowdsourcinginvolvestakingafunctionoractivitythathasbeentraditionally

performedbyoneormoredesignatedpeopleoremployeesandoutsourcingitviaanopencalltoa

narrowlytargetedoranundefinedgroupofpeople. Again,theInternetextendsthereachandpowerof

crowdsourcingbecauseitenablesapersonorcompanytoextendthecallforhelptoanyonearoundthe

world. Companiessearchingfornewinvestments,acquisitiontargetsandcompetitiveintelligenceare

alreadyusingcrowdsourcingcampaigns. Oncemore,anexamplebestillustratesthepowerof

crowdsourcing.

AprivateUnitedStates(U.S.)companywantedtofindaspecificsetofacquisitiontargetsamongallthe

companiesintheU.S.thatownlargecranesusedinconstruction. UsingaWebservice,analystsenlisted

hundredsofindividualsaroundtheworldwhousedpublicinformationsourcestoidentifythecrane

companies. Theseindividualsperformedthousandsofparallelsearches;evencontactingthecompanieswith

detailedquestionsabouttheirownershipstatus,cranetypesandcapabilities. Whilethissoundslikearoutine

datacollectiontask,thedifferenceistheWebservice.Withit,thousandsoftasksareperformed

simultaneouslyandtheworkersarepaidpenniesfortheindividualtasks. Theresultishighqualitydata,

providedveryquickly(hourstodays),atveryaffordablerates. TheWebserviceallowsforqualitycontrol

measureslikescreeningparticipants,rejectinginadequatedatasubmissionsandhavingmultipleparticipants

performasample

of

similar

jobs

to

confirm

quality

and

accuracy.

ToensuretheprocessworksinotherlanguagesonecompanyusedonlineadvertisementstocallArabic

speakingInternetusersintoaworkfromyourcomputeropportunity. Thecallresultedin4,300visits

thatledto1,560individualssigningupin24hours. Therespondentswerefromdiversecountriesand

providedanemailaddressduringtheregistrationprocess. Adifferentcrowd(basedintheU.S.)

performedInternetprotocol(IP)numberlookupstovalidatetheuserlocations. Thatcrowdprocessed

theIPdatainonehour. Therespondentscamefromthecountriesandterritoriesoutlinedinthe

followingchart. Therespondentsareavailabletoperformonlineandoffline(e.g.,govisitCompanyCs

storesandfilloutthisquestionnaireregardingservicequality)researchtasks.


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SourceEvaluation. Evaluatingasupplierorpartnerisanessentialstepthatshouldnotberushed. Toooften,becausecompanieshaveinefficient,humanintensivesourcediscoveryactivities,theyrunoutof

organizationalpatienceandrigorwhentheygettotheevaluationstep. Dealingwithimperfect

information,tightdeadlines,stressfulnegotiationsandthepressuresofinternalorexecutivepolitics

(e.g.,oneofthepotentialsuppliersisafriendoftheCEO),sourcingorganizationsendupmakingsub

optimaldecisions. Tomitigatetheserisks,globalsourcingorganizationsneedaccesstoamulticultural

expertnetworkandarigorousevaluationmethodology.

Multiculturalexpertnetworksenableacompanytotaptheexperience,expertiseandknowledgeof

known,trustedprofessionalswhocanobjectivelyevaluateapotentialpartnerorsupplier. Likeapeer

reviewordissertationpanel,theycanfocusexclusivelyonwhethertheinformationaboutapotential

supplierissufficient,reliableandcompelling. Theycanalsoprovideanindependentrecommendation

onthesupplierswhomeetacompanysevaluationcriteria. Byusingexpertsfrommultiplecultures,a

companyensuresthatitdoesnotinadvertentlyintroducebiasintotheevaluation. Amulticultural

expertnetworkalsocanhelpglobalsourcingorganizationsunderstandthelocalorculturalcontext

applicabletoabusinessoperationorglobalsupplychain.

Globalsourcingexecutivesmustbeginorganizingstandingoradhocmulticulturalnetworksthatcan

focusonspecific,largescalesourcingdecisionsorperformaquarterlyorsemiannualduediligenceof

pendingsourcingdecisions. Expertnetworkscanincludeconsultants,butdonottraditionallyinclude

consultancies,astheybringinherentconflictsofinterest. Beforeusingexpertnetworks,globalsourcing

organizationsmusttiertheirsupplierrelationshipsintothosethatarecommodity,keyoperationaland

strategic. Expertnetworksshouldbefocusedonselectkeyoperationalandstrategicrelationships,as

thecommodityrelationshipsfocusprimarilyonthepriceandtimingofnonstrategicproductioninputs.

Forinstance,youdonotneedanexpertnetworktoadviseyouonselectinganofficesuppliesvendor,

butmightyouuseoneforselectingaglobaltransportationpartner.

Asmentioned

earlier,

top

tier

global

sourcing

organizations

also

need

arigorous

evaluation

methodologythatconsidersasupplierscapabilities,economics,resiliencerisks,responsiveness,

strategicalignmentandanyothermeritsordemerits. Therecanandshouldbearelationshipbetween

theevaluationmethodologyandthecontenttargetsandthresholdsusedintheWebcrawlingor

crowdsourcingprogramsusedinsourcediscovery. Infact,theseprogramsextendthroughthelifecycle

ofsourcerelationship,becomingmonitoringtoolstodeterminewhenasuppliermaybetakingonrisks

thatcouldaffecttherelationshiportheirperformance.

SourceNetworkManagement. Yes,wehaveevolvedfromsupplychainmanagementtosourcenetworkmanagement. Sourcingexecutivesmanageprocessesthathaveexperiencedrapidgrowthin

boththeirimpacttothebusinessandthepaceofchange. LegacyITsystemsarearchitecturally

inadequate

and

unable

to

provide

multi

company

visibility,

collaboration

and

flawless

transaction

executionacrossanevergrowingnetworkofcustomers,suppliers,outsourcingprovidersand

employees.Thestateoftheartincludesmultienterprisesourcingnetworkswithactiveandpassive

sensorsthatprovideallpartiesnearrealtimeinsightintothenetworksperformance. Ideally,amulti

nationalenterprisewithglobalsourcingresponsibilitiesneeds:

Anopenarchitecturedeliveredassoftwareasaservicethatallowsformultienterpriseintegration(e.g.,allyoursuppliers,partnersandcustomers)ononesourcingnetwork


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Ahosted(e.g.,applicationserviceprovider)reverseandforwardauctionplatformtocreatedynamicpricingfornewsupplies/suppliersandthedisposal/divestitureofnonstrategicassets,

respectively

Adeliberatesensornetworkandcommandcenterthatprovidesnearrealtimeinsightonallaspectsofthesourcingnetwork

Theseturnkeycapabilitiescanbeimplementedinmonths,andagainthereareopportunitiesfor

synergybetweenthesetechnologiesandtheWebcrawlingandcrowdsourcingprograms. Assumea

companyneedslandsurveyorsacrossNorthAfrica. TheWebcrawlingandcrowdsourcingprogramscan

identifymanyorallofthepotentialvendors. Followingrigorousevaluation,thirtyorfortyofthefirms

canbeloadedintothereverseauctionvendordatabase(withthedataentryperformedvia

crowdsourcing). Thevendorscanthenbeinvitedtotakecontroloftheiraccountsandreviewthe

requestsforquote(RFQ)postedintheauction. TheRFQsmightaskforanyorallofthefollowing:

Blendedhourlyratesforallprojectsinthecomingfiscalyear BestpriceforProjectsA,B,CandD(basedondetailedprojectdescriptions) Pricepermileofsurveyingforanewpipelineortransmissionline Bestfixedpriceformedium andlargescaleprojects

Asthesurveyorsexecutetheproject,theirpersonnelorequipmentcanbeoutfittedwithnewsensor

networksthatarenotRadioFrequencyIdentification(RFID)based. Thesenewsensorshavethree

redundantcommunicationmethodsincludingdigitaltelephony,meshnetworksandsatellite

communicationstoprovidenumerousreadingsofsecurity,temperature,acousticsandothermeasures.

Nowtheglobalsourcingexecutiveknowswhentheteamsareworkingandcanestimatewhenthe

projectwillbecompleted. ThesenonRFIDsensorshaveothermerits. Forinstance,ifacompanyuses

RFIDtomonitorpharmaceuticalsshippedfromHongKongtoDubaiitwillgetfivereadingsduringthe

trip. Ifthecompanyusesthenewersensors,itreceivesmorethan160readings(dependentonpower).

Thisallows

plenty

of

insight

and

time

to

re

order

and

deliver

(by

air)

replacements

for

lots

that

do

not

remainwithinapprovedtemperatureranges.Whetheryouaresourcingpaperclipsorairplanes,global

sourcingorganizationsneedtransparencyinthenetworktosense,torespondandtoprotect.

SourcingAnalytics. ThemetaphorforthisapproachisthebookCompetingonAnalytics,whicharguesthatcompetitiveadvantagecanbesustainedinthefuturebyadvancingthequalityofonesinsightand

decisionstheoutcomesofanalysis. Sourcinganalyticsistheemerginganalyticdisciplinefocusedon

strategicsourcing. Itmustbeacorecompetencyofaglobalsourcingorganization. Analysisisonly

feasiblewhenyouhavethesourcesofdata,themethodsofanalysisandtheanalystswhounderstand

themissionorbusinesscontext. Assumingasourcingnetworkanddatacollectionprogramshavebeen

implementedacrosstheoperation,itispossibletodeveloprobustmetricsforthemonitoringand

ongoingevaluation

of

the

performance

of

the

overall

system.

Large

enterprises

cannot

have

a

homogeneoussourcingapproach,buttheycandevelopandtrackbenchmarkinformationforcomparing

thevarioussourcingapproacheswithindifferentcompaniesorbusinessunits.

Designingasourcinganalyticsprogramrequiresaneyetowardsoptimization. Theglobalsourcing

executivemustensurethatinformationisavailabletoidentifywhensourcingprogramsarenotmeeting

theireconomicorqualitygoals. Havingnearrealtimeinsightintosubordinatesourcingorganizations

andprogramscanonlybeachievedwithacustomreportingcapability. Ingeneral,adatamartmayalso


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berequiredtostore,manipulateandmanagetheinformationnecessaryforsourcinganalytics. Tobegin

with,keymetricswithintheglobalsourcingexecutivesdashboardincludethoseavailableintheSupply

ChainCouncilsSupplyChainOperatingModel2benchmarkprogram. Itbenchmarksmorethan50items

togeneratethefollowingcoresourcingmetrics:

Todaysglobal

sourcing

executive

needs

to

understand

these

metrics

for

each

component

business,

for

eachregionandfortheentireenterprise.Whilethesebenchmarksareusefulfordiscretesupplychains,

2Availableonlineathttp://www.supplychain.org

Attribute Metric Definition

Reliability PerfectOrderFulfillment

Thepercentageoforders1)deliveredontimeandinfulltorequestdateAND/ORtocommit

date,2)thatmeetthecustomersthreeway

match(invoice,P.O.andreceipt)and3)haveno

productqualityissues.

Responsiveness OrderFulfillmentCycleTimeThe

amount

of

time

from

customer

authorizationofasalesordertothecustomerreceiptof

product.

FlexibilityUpsideSupplyChain

Flexibility

Theamountoftimeittakesasupplychainto

respondtoanunplanned20percentincreasein

demandwithoutserviceorcostpenalty.

CostSupplyChainManagement

Cost

Thefixedandoperationalcostsassociatedwith

thePlan,Source,MakeandDeliversupplychain

processes.

Assets CashtoCashCycleTime

Addingthenumberofdaysofinventorytothe

numberofdaysofreceivablesoutstandingandthensubtractingthenumberofdaysofpayablesoutstanding.Theresultisthenumberofdaysof

workingcapitalyourorganizationhastiedupin

managingyoursupplychain.


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onemustadaptthemeasuresfortheuniquescenarioofaglobalenterprise. Belowaresomeofthe

globalandlocalconsiderations3theglobalsourcingexecutivemustmanage,monitorandmeasure:

Global Local

Networkstructuringforproductionandtransportationoptimization

Customerservicemanagement

Informationsystemsdeploymentandcontrol

Gatheringmarketintelligence

Inventorypositioning Warehousemanagementandlocaldelivery

Sourcingdecisions Customerprofitabilityanalysis

Internationaltransportmodeandsourcingdecisions

Liaisonwithlocalsalesandmarketingmanagement

Tradeoffanalysesandsupplychaincost

control

Operatingprofit

Sourcingtalentmanagement HumanresourcemanagementSourcingResilience.Maintainingaresilientsourcingnetworkrequirestheglobalsourcingexecutivetomanagemultipleissues,including:

Acceptablelevelsofredundancyinthenetwork Acceptablesecurity Insightintobusiness,networkandsupplierrisks Rapidinsightandresponseprotocolsfordisruptions Continuityofsourcingplanningwithrehearsals/exercises

3Christopher,Martin. LogisticsandSupplyChainManagement,3

rdEdition,(Harlow,England:FinancialTimes,

PrenticeHall,2005),pp.225,withamendments.


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Manyaspectsofthisresiliencerelyonappropriateinsightavailablefromawelltunedmonitoring

activity. Theautomation/ITcomponentsoutlinedinprevioussectionsofthispaperarethebuilding

blocksforsuchinsight,buttheyrequireanalystswhounderstandthenatureoftodaysthreats.

Companies,nongovernmentalorganizations(NGOs)andevenquasigovernmentalorganizationslike

sovereignwealthfundswillnotbeimmunetotheforeignpolicyinterestsofcompetingnations,justas

theEastIndiaTradingCompanywasnotimmunetothewarsbetweenFranceandBritain. Therearea

hostofoldandnewconcernsinthesemoderntimes: healthrisks,competitionforcommodities,

securityimpactsdegradingglobaltransportationnetworks,cyberwarfarebetweenstateandnonstate

actors,violentandnonviolentactionsbymicropopulationswithinastate,etc. Additionally,thereare

plentyofmediaandinformationoutletsthatprovideinformationonthesetopics.

Companiesneedaccesstopersonnelwithcompetenciesinresearchandanalysistoaddressgeopolitical

andregionalrisks,information/cyberassurance,brandintegrity/resilienceandphysicalsecurity

whetherglobalsourcingexecutiveschoosetoestablishinhouseanalyticunitsoroutsourceitina

managedanalyticserviceformat. However,theoutsourcingrouteensurescompaniesdonothaveto

worryabouttraining,certificationandcareerprogressionoftheseanalysts.

Summary. Thispapersummarizestherolethatsophisticatedanalysisandemergingtechnologiescan

playin

designing

and

implementing

aglobal

sourcing

organization,

whether

for

investments

or

key

supplierrelationships. Itaddressedthedifferentdimensionsofsourcinginformation,peopleand

training,technologyandinfrastructureaswellasthelifecycleofchallengesforaglobalsourcing

executive.Wellcapitalizedorganizationsarebreakingnewgroundinglobalsourcingbecauseofthe

speed,scopeandsophisticationoftheirinvestmentandsupplyneeds. Theywillalsobreaknewground

inthemanagementanddecisionprocessesnecessarytooperateattheirglobalscale. StrategicSourcing

2.0iswithinsight.

JohnBrennanisapartneratInnovativeAnalytics&Training,LLCandservesastrategyconsultanttothe

USgovernmentandseveralcompanies.Mr.Brennandevelopsapproachestostrategicsourcing,

includingmajorstudiestoredesignsourcingorganizationsorthemethodsforacquiringkeyassets. Heis

agraduateoftheUSMilitaryAcademyatWestPointandhasanMBAfromtheJohnsHopkinsCarey

BusinessSchool.

GeneralElectric(GE)recentlyassignedaresearchscientistthefulltimejobofstudyingsourcesof

materialsthatarecriticaltoGE,whichisinvestingheavilyinbatterytechnologiesfortransportation

andgridstorage.GEwascaught"behindthecurve"whenonematerialusedinitsaircraftengines

shotupinprice,soitisnowlookingforother"pinchpoints,"saidMarkLittle,directorofGE's

research

labs.

Source:

Electric

car

race

could

strain

lithium

battery

supply,

by

Martin

LaMonica,

October31,2008,CNet'sGreenTechWebsite.

Documents

StrategicSourcing2.0