StrategicSourcing2.

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byJohnBrennan InnovativeAnalytics&TrainingLLC|www.innovativeanalytics.com

ExecutiveSummary. Globalsourcingexecutivesfacemorechallengesthanever,andtheglobalsourcingenvironmentwill onlygrowmorecomplex.Thefirmsthatsurvivethenextcenturywilldosobecausetheymakekey investmentsinbuildingthenextgenerationofstrategicsourcingcapabilities.StrategicSourcing2.0is aboutautomatingnetworksandanalysisthatismorerigorous.Globalsourcingexecutivescanincrease theireffectivenessbyautomatingmanyaspectsofthesourcinglifecycleandbyrelyingonacoregroup ofanalystswhofocusoncreatingtheinformationreportingandanalysisnecessaryforenterprise awareness.Presentedbelowarethelifecycleandcapabilitiesforautomatingandanalysis. SourceDiscoveryWebcrawlingandcrowdsourcingprovideaffordable,tailoredinformationto constantlyupdatethepictureofrisks,supplierstatus,newentrantsandcompetitiveintelligence. SourceEvaluationMulticulturalexpertnetworksandasupplierevaluationmethodologycanimprove thelikelihoodofsuccessfulsupplierrelationships. SourceNetworkManagementMultienterprisesourcingnetworks,adeliberatesensornetwork,anda commandcentercanprovidenearrealtimeinsightonallaspectsofthesourcingnetwork;hosted auctionservicescanprovidedynamicpricingforsourceacquisitionsandassetdisposal. SourcingAnalyticsNearrealtimeinsightintosubordinatesourcingorganizationsandprogramscan onlybeachievedwithacustomreportingcapability.Ingeneral,adatamartmayalsoberequiredto store,manipulateandmanagetheinformationnecessaryforsourcinganalytics. SourcingResilienceThecapabilitiesandinformationtomanagemultipleissuesliketheacceptable levelsofredundancyinthenetwork,acceptablesecurity,insightintobusiness,networkandsupplier risks,rapidinsightandresponseprotocolsfordisruptions,andcontinuityofsourcingplanningwith rehearsals/exercises. Sophisticatedanalysisandemergingtechnologiesareintegraltodesigningandimplementingaglobal sourcingorganization,whetherforinvestmentsorkeysupplierrelationships.

GeneralElectric(GE)recentlyassignedaresearchscientistthefulltimejobofstudyingsourcesof materialsthatarecriticaltoGE,whichisinvestingheavilyinbatterytechnologiesfortransportation andgridstorage.GEwascaught"behindthecurve"whenonematerialusedinitsaircraftengines shotupinprice,soitisnowlookingforother"pinchpoints,"saidMarkLittle,directorofGE's researchlabs.Source:Electriccarracecouldstrainlithiumbatterysupply,byMartinLaMonica, October31,2008,CNet'sGreenTechWebsite.

StrategicSourcing2.0

StrategicSourcing2.0
byJohnBrennan InnovativeAnalytics&TrainingLLC|www.innovativeanalytics.com

Introduction.Today,withtheemergingdisciplinesofoutsourcingandstrategicsourcing,companies havebeguntoviewtheinputsoftheirbusinessmodelthesuppliesandsuppliersasintegral components.Infact,manycompaniesaredevelopingsourcingasacorecompetency.Newmethodsin sourcinginvolvesophisticatedanalysisandemergingtechnologieslikemultienterprisesupplychain managementnetworks,reverseauctionsandactivedatacollectionprogramsthatautomatethesearch forsuppliers,productsandpartners.Sourcingalsorequiresdeliberateandprudentriskplanningto ensuretheresilienceofthesourcingnetworks.Thisplanningmustrelyonaconstantlyupdatedpicture oftherisks,thevalueandthelocationofsuppliesandproductsinthesupplychain(tolocalizeand quantifythepotentialrisks). Globalsourcingexecutivesfacemorechallengesthanever,andtheglobalsourcingenvironmentwill onlygrowmorecomplex.Thefirmsthatsurvivethenextcenturywilldosobecausetheymakekey investmentsinbuildingthenextgenerationofstrategicsourcingcapabilities.StrategicSourcing2.0is aboutautomatingnetworksandanalysisthatismorerigorous.Globalsourcingexecutivescanincrease theireffectivenessbyautomatingmanyaspectsofthesourcinglifecycleandbyrelyingonacoregroup ofanalystswhofocusoncreatingtheinformationreportingandanalysisnecessaryforenterprise awareness. ItistimeforcompaniestostartbuildingStrategicSourcing2.0.Thismeansstrategicsourcingleaders mustintegratethecoredimensionsofsourcing(information,peopleandtraining,technologyand infrastructure)acrossthelifecycleofsourcing(discovery,evaluation,management,analyticsand resilience).Firmsmustbegintodevelopcapabilitiesformultienterprisesituationsacrossaglobalscale. Thispaperdetailsthecapabilitiesneededtosolveglobalsourcingchallenges.Thecapabilitiesare identifiedintheStrategicSourcing2.0Frameworkbelow.

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

StrategicSourcing2.0

SourceDiscovery.Identifyingtherightpartners,vendorsandsuppliersisadynamicandevergrowing challenge.Leadingaportfolioofrelatedbusinessesaddsothervariablestothechallenge,assourcing executivestrytocarefullybalancethenumerousinternalandexternalrelationships.Current,objective informationaboutexistingandpotentialsuppliersarmssourcingexecutiveswiththedatatosupportthe innumerabledecisionsnecessaryeachweekandmonth.Globalsourcingexecutivesmustbegin implementinganinformationgathering,analysisandreportingprogramfocusedonidentifying, qualifyingandmonitoringsuppliers.Therearetwocompellingtechniquestodaytoconsider:Web 1 crawlingprogramsandcrowdsourcing. 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.Thesystemisflaggedtowarnthecompanyifthecontentrelatestotheingredientsand sourcesusedinitsmanufacturingoperations.AcompanylikeMattelwouldhavethiscapabilityusefulbefore thepublicfuroroverleadpaintusedintheproductionofitstoys. AFortune100,multinationalpetrochemicalcompanyhasintegratedWebcrawlingintoitsglobalrisk assessmentcenters.Specifically,theprogramcontinuouslymonitorsandharvestsinformationfromtheopen Internettoassistintheduediligenceassessmentprocesssurroundingnewbusinessdealsandtoidentifyearly indicatorsandwarningsofeventsofinterestincountriesandlocationswherethecompanyconductsbusiness.

TheseexamplesdemonstratethepowerofWebcrawlinginitsabilitytosystematicallymonitorthe informationandreportingabouta)acompany,b)itssuppliersandpartners,c)itsproductsandkey employees,d)theregionsthecompanyoperatesinande)potentialnewsuppliers,partnersand products.Thekeyistoidentifycontentthresholdsandtouseascoringalgorithminordertoproperly tunethecrawlingandmonitoringprogramtoreducefalsepositives.Thebeneficialresultisitextends theawarenessofacompanytoaglobaldimension.

JeffHowecoinedcrowdsourcingina2006WIREDmagazinearticle.Theoriginalarticleislocatedonlineat http://www.wired.com/wired/archive/14.06/crowds.html.
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StrategicSourcing2.0

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 performasampleofsimilarjobstoconfirmqualityandaccuracy.

ToensuretheprocessworksinotherlanguagesonecompanyusedonlineadvertisementstocallArabic speakingInternetusersintoaworkfromyourcomputeropportunity.Thecallresultedin4,300visits thatledto1,560individualssigningupin24hours.Therespondentswerefromdiversecountriesand providedanemailaddressduringtheregistrationprocess.Adifferentcrowd(basedintheU.S.) performedInternetprotocol(IP)numberlookupstovalidatetheuserlocations.Thatcrowdprocessed theIPdatainonehour.Therespondentscamefromthecountriesandterritoriesoutlinedinthe followingchart.Therespondentsareavailabletoperformonlineandoffline(e.g.,govisitCompanyCs storesandfilloutthisquestionnaireregardingservicequality)researchtasks.

StrategicSourcing2.0

SourceEvaluation.Evaluatingasupplierorpartnerisanessentialstepthatshouldnotberushed.Too often,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. Asmentionedearlier,toptierglobalsourcingorganizationsalsoneedarigorousevaluation methodologythatconsidersasupplierscapabilities,economics,resiliencerisks,responsiveness, strategicalignmentandanyothermeritsordemerits.Therecanandshouldbearelationshipbetween theevaluationmethodologyandthecontenttargetsandthresholdsusedintheWebcrawlingor crowdsourcingprogramsusedinsourcediscovery.Infact,theseprogramsextendthroughthelifecycle ofsourcerelationship,becomingmonitoringtoolstodeterminewhenasuppliermaybetakingonrisks thatcouldaffecttherelationshiportheirperformance. SourceNetworkManagement.Yes,wehaveevolvedfromsupplychainmanagementtosource networkmanagement.Sourcingexecutivesmanageprocessesthathaveexperiencedrapidgrowthin boththeirimpacttothebusinessandthepaceofchange.LegacyITsystemsarearchitecturally inadequateandunabletoprovidemulticompanyvisibility,collaborationandflawlesstransaction executionacrossanevergrowingnetworkofcustomers,suppliers,outsourcingprovidersand employees.Thestateoftheartincludesmultienterprisesourcingnetworkswithactiveandpassive sensorsthatprovideallpartiesnearrealtimeinsightintothenetworksperformance.Ideally,amulti nationalenterprisewithglobalsourcingresponsibilitiesneeds: Anopenarchitecturedeliveredassoftwareasaservicethatallowsformultienterprise integration(e.g.,allyoursuppliers,partnersandcustomers)ononesourcingnetwork

StrategicSourcing2.0

Ahosted(e.g.,applicationserviceprovider)reverseandforwardauctionplatformtocreate dynamicpricingfornewsupplies/suppliersandthedisposal/divestitureofnonstrategicassets, respectively Adeliberatesensornetworkandcommandcenterthatprovidesnearrealtimeinsightonall aspectsofthesourcingnetwork

Theseturnkeycapabilitiescanbeimplementedinmonths,andagainthereareopportunitiesfor synergybetweenthesetechnologiesandtheWebcrawlingandcrowdsourcingprograms.Assumea companyneedslandsurveyorsacrossNorthAfrica.TheWebcrawlingandcrowdsourcingprogramscan identifymanyorallofthepotentialvendors.Followingrigorousevaluation,thirtyorfortyofthefirms canbeloadedintothereverseauctionvendordatabase(withthedataentryperformedvia crowdsourcing).Thevendorscanthenbeinvitedtotakecontroloftheiraccountsandreviewthe requestsforquote(RFQ)postedintheauction.TheRFQsmightaskforanyorallofthefollowing: Blendedhourlyratesforallprojectsinthecomingfiscalyear BestpriceforProjectsA,B,CandD(basedondetailedprojectdescriptions) Pricepermileofsurveyingforanewpipelineortransmissionline Bestfixedpriceformediumandlargescaleprojects

Asthesurveyorsexecutetheproject,theirpersonnelorequipmentcanbeoutfittedwithnewsensor networksthatarenotRadioFrequencyIdentification(RFID)based.Thesenewsensorshavethree redundantcommunicationmethodsincludingdigitaltelephony,meshnetworksandsatellite communicationstoprovidenumerousreadingsofsecurity,temperature,acousticsandothermeasures. Nowtheglobalsourcingexecutiveknowswhentheteamsareworkingandcanestimatewhenthe projectwillbecompleted.ThesenonRFIDsensorshaveothermerits.Forinstance,ifacompanyuses RFIDtomonitorpharmaceuticalsshippedfromHongKongtoDubaiitwillgetfivereadingsduringthe trip.Ifthecompanyusesthenewersensors,itreceivesmorethan160readings(dependentonpower). Thisallowsplentyofinsightandtimetoreorderanddeliver(byair)replacementsforlotsthatdonot remainwithinapprovedtemperatureranges.Whetheryouaresourcingpaperclipsorairplanes,global sourcingorganizationsneedtransparencyinthenetworktosense,torespondandtoprotect. SourcingAnalytics.ThemetaphorforthisapproachisthebookCompetingonAnalytics,whichargues thatcompetitiveadvantagecanbesustainedinthefuturebyadvancingthequalityofonesinsightand decisionstheoutcomesofanalysis.Sourcinganalyticsistheemerginganalyticdisciplinefocusedon strategicsourcing.Itmustbeacorecompetencyofaglobalsourcingorganization.Analysisisonly feasiblewhenyouhavethesourcesofdata,themethodsofanalysisandtheanalystswhounderstand themissionorbusinesscontext.Assumingasourcingnetworkanddatacollectionprogramshavebeen implementedacrosstheoperation,itispossibletodeveloprobustmetricsforthemonitoringand ongoingevaluationoftheperformanceoftheoverallsystem.Largeenterprisescannothavea homogeneoussourcingapproach,buttheycandevelopandtrackbenchmarkinformationforcomparing thevarioussourcingapproacheswithindifferentcompaniesorbusinessunits. Designingasourcinganalyticsprogramrequiresaneyetowardsoptimization.Theglobalsourcing executivemustensurethatinformationisavailabletoidentifywhensourcingprogramsarenotmeeting theireconomicorqualitygoals.Havingnearrealtimeinsightintosubordinatesourcingorganizations andprogramscanonlybeachievedwithacustomreportingcapability.Ingeneral,adatamartmayalso

StrategicSourcing2.0

berequiredtostore,manipulateandmanagetheinformationnecessaryforsourcinganalytics.Tobegin with,keymetricswithintheglobalsourcingexecutivesdashboardincludethoseavailableintheSupply ChainCouncilsSupplyChainOperatingModel2benchmarkprogram.Itbenchmarksmorethan50items togeneratethefollowingcoresourcingmetrics:

Attribute

Metric

Definition

Reliability

PerfectOrderFulfillment

Thepercentageoforders1)deliveredontime andinfulltorequestdateAND/ORtocommit date,2)thatmeetthecustomersthreeway match(invoice,P.O.andreceipt)and3)haveno productqualityissues.

Responsiveness

OrderFulfillmentCycleTime

Theamountoftimefromcustomerauthorization ofasalesordertothecustomerreceiptof product.

Flexibility

UpsideSupplyChain Flexibility

Theamountoftimeittakesasupplychainto respondtoanunplanned20percentincreasein demandwithoutserviceorcostpenalty.

Cost

SupplyChainManagement Cost

Thefixedandoperationalcostsassociatedwith thePlan,Source,MakeandDeliversupplychain processes.

Assets

CashtoCashCycleTime

Addingthenumberofdaysofinventorytothe numberofdaysofreceivablesoutstandingand thensubtractingthenumberofdaysofpayables outstanding.Theresultisthenumberofdaysof workingcapitalyourorganizationhastiedupin managingyoursupplychain.

Todaysglobalsourcingexecutiveneedstounderstandthesemetricsforeachcomponentbusiness,for eachregionandfortheentireenterprise.Whilethesebenchmarksareusefulfordiscretesupplychains,

Availableonlineathttp://www.supplychain.org

StrategicSourcing2.0

onemustadaptthemeasuresfortheuniquescenarioofaglobalenterprise.Belowaresomeofthe globalandlocalconsiderations3theglobalsourcingexecutivemustmanage,monitorandmeasure:

Global

Local

Networkstructuringforproductionand transportationoptimization

Customerservicemanagement

Informationsystemsdeploymentand control

Gatheringmarketintelligence

Inventorypositioning

Warehousemanagementandlocaldelivery

Sourcingdecisions

Customerprofitabilityanalysis

Internationaltransportmodeand sourcingdecisions

Liaisonwithlocalsalesandmarketing management

Tradeoffanalysesandsupplychain costcontrol

Operatingprofit

Sourcingtalentmanagement

Humanresourcemanagement

SourcingResilience.Maintainingaresilientsourcingnetworkrequirestheglobalsourcingexecutiveto managemultipleissues,including: Acceptablelevelsofredundancyinthenetwork Acceptablesecurity Insightintobusiness,networkandsupplierrisks Rapidinsightandresponseprotocolsfordisruptions Continuityofsourcingplanningwithrehearsals/exercises

Christopher,Martin.LogisticsandSupplyChainManagement,3rdEdition,(Harlow,England:FinancialTimes, PrenticeHall,2005),pp.225,withamendments.

StrategicSourcing2.0

GeneralElectric(GE)recentlyassignedaresearchscientistthefulltimejobofstudyingsourcesof materialsthatarecriticaltoGE,whichisinvestingheavilyinbatterytechnologiesfortransportation andgridstorage.GEwascaught"behindthecurve"whenonematerialusedinitsaircraftengines shotupinprice,soitisnowlookingforother"pinchpoints,"saidMarkLittle,directorofGE's researchlabs.Source:Electriccarracecouldstrainlithiumbatterysupply,byMartinLaMonica, October31,2008,CNet'sGreenTechWebsite. 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 playindesigningandimplementingaglobalsourcingorganization,whetherforinvestmentsorkey supplierrelationships.Itaddressedthedifferentdimensionsofsourcinginformation,peopleand training,technologyandinfrastructureaswellasthelifecycleofchallengesforaglobalsourcing executive.Wellcapitalizedorganizationsarebreakingnewgroundinglobalsourcingbecauseofthe speed,scopeandsophisticationoftheirinvestmentandsupplyneeds.Theywillalsobreaknewground inthemanagementanddecisionprocessesnecessarytooperateattheirglobalscale.StrategicSourcing 2.0iswithinsight. JohnBrennanisapartneratInnovativeAnalytics&Training,LLCandservesastrategyconsultanttothe USgovernmentandseveralcompanies.Mr.Brennandevelopsapproachestostrategicsourcing, includingmajorstudiestoredesignsourcingorganizationsorthemethodsforacquiringkeyassets.Heis agraduateoftheUSMilitaryAcademyatWestPointandhasanMBAfromtheJohnsHopkinsCarey BusinessSchool.

StrategicSourcing2.0