Today, cost rationalization is at the forefront of agenda for every organization. Efforts are channelized towards developing a system which lays a platform for long term benefits. On the organizational level, departments face the issue of adopting modern approaches. The test is to balance new methods vis-a-vis traditional procedures on one hand and human inertia on the other. The challenge also rests with identifying and implementing newer methods without hampering the normal operational proceedings. A more detailed analysis reveals that these challenges are industry specific and are also influenced by geographic, demographic and social dynamics. All in all, organizations are looking for perpetual system that helps them in seamless switch from one level to the other.
For their central role in the determining the quality of end product, the procurement department is under the scanner for the material sourced. The sourcing personnel are under constant pressure to procure best quality material at an optimal value. They operate under several constraints of time, location; delivery, logistics, and fulfillment so on and so forth. Moreover, the quality of direct raw materials defines the quality of end product. Hence, it becomes all the more imperative to have the right option and adopt the right approach for sourcing.
The latest innovation in the sourcing process comes in the form of eSourcing! It is a reverse auction process for buying items where prices go down as the auction progresses. It leverages the power of internet and Software as a Service (SaaS) model, brings the bidders (suppliers) on a common platform. In a controlled ambiance the buyer invites its shortlisted (selected) suppliers who are at technically at par with each other. The buyer also reserves the right to craft the strategy for the reverse auction based on his or her organizational policies. An ideal reverse auction platform is one in which the buyers operational process is exactly replicated without any deviation.
Once the auction event commences, the bidders (suppliers) bid against each other for definite period. They are able to see the corresponding bids by other bidders and in a competitive scenario are forced to shrink their profit margins passing on the benefits to the buyers. This also saves substantial time for the buyers as they now no longer wait for E-mails from suppliers about quotes, no longer do they negotiate on phone and is independent of availability of suppliers for discussion. The suppliers on the other hand are happy that system is transparent and their chances of winning the contract are in their own hands.
It’s a collaborative process of negotiation and is also called as a ‘Negotiation Tool’ in loose sense. The science of negotiation is ideally aims at a win-win situation, but if you are a buyer, you will never mind a (you) win and (supplier) lose situation, will you?
Orginally post on Rishabh Software Pvt. Ltd.: eSourcing
Imagine a situation where you are buying say 10 kg sugar @ Rs. 50/Kg from the grocer next door. You end up spending Rs. 500 on the same. Now, there’s a new hypermarket in town, about 3 kms away from your home and is selling sugar with same quality if not better at Rs. 45/Kg, for 10 kgs, you incur Rs. 450. You will quickly calculate and quantify: A. Amount of expense on fuel, B. Cost of carrying sugar across a distance of 3 Kms, C. Amount of effort you will incur in the activity. If the sum of these 3 is less than Rs. 50, you will obviously go and buy the sugar from hypermarket. This is the essence of Low Cost Country Sourcing (Hereafter referred as LCC Sourcing).
In the example above, the two crucial facts though were, A. Availability of the ‘Information’ that there’s such a hypermarket in town selling sugar at Low Cost. B. Your calculations and Willingness to save that extra penny. Here comes the role of how aptly the ‘NEW’ source has orchestrated his or her offering and the avenues it has for expanding it horizon. Also, it depends on the ‘Trustworthiness’ of the new source. You may buy the sugar from Hypermarket, but if it’s just another grocer, 3 Kms away, giving huge discounts, you will definitely find it dicey and stick to your old source.
The current global competitive scenario is dominated by improved communication technologies and opening of global economies. These factors have paved the way for introduction of new players in traditionally insulated markets across industries. These new entrants with improved business and operational methodologies are exerting immense pressure on companies across the globe to cope up with the dynamics of modern day operations. New equations on the diplomatic levels, realignment of relations between economies, emergence of developing countries as regional hubs of trade and commerce are increasingly adding new dimensions to business processes.
The LCC Sourcing is prudent concept gathering momentum in the industry circles due to this realignment of economies across the globe. In such a dynamic scenario, the winning formula lies in the hands of the companies who are most flexible and open for changes. The kinetics of adopting new entrants in the company’s ecosystem assumes topmost priority. One very important species in any organization’s ecosystem is its suppliers. LCC Sourcing is a smart way of sourcing items not only at the lowest cost but also (at times) at better quality. The manufacturing, resource, technological and other benefits give some countries unassailable lead over the others in terms of producing items better… faster and cheaper than other countries.
Author: P. Mane, ODScommerce
Originally Posted on Rishabh Software Pvt. Ltd
Strategic Sourcing is the science of evaluating and continuously monitoring purchasing activity of an organization for improving overall efficiency. It alters the way of looking at the process of Sourcing. Sourcing, no longer is seen as an operational process but a Strategic and Impactful function. It analyses the long lasting impact of sourcing from ‘A’ particular vendor on the business operations. The Strategic Sourcing Process Cycle is a five step process of Spend Analysis, Supplier Performance Management, Supplier Identification, Sourcing and Contract Management.
Spend Analysis focuses on increasing the visibility of management on their items. It categorizes items based on annual spend, vendors, use, strategic importance to company, etc. It thus opens up avenues for a detailed version of companies sourcing expenses. The Spend Analysis also reveals relative performance of suppliers on identified parameters.
Post spend analysis, companies initiate Supplier Performance Management. During this stage, individual suppliers are identified and a Supplier Scorecard is prepared for rating suppliers on desired parameters. The improvement areas for Suppliers are communicated to the suppliers and companies go one step ahead in developing certain capabilities in suppliers’ manufacturing processes that otherwise are not available with them. The companies take a holistic approach and consider long term association with supplier as prime goal. However, if the suppliers fail to meet the requisite criteria, the association with the same is reconsidered.
Supplier Identification is the next step in Strategic Sourcing Process cycle that caters to filling lacunae in the suppliers’ ecosystem. LCC (Low-Cost Country) Sourcing is one such activity practiced by modern sourcing organizations. For items that are not of Strategic Importance (or very high value in terms of production continuity) to the company, Supplier identification paves way for ensuring the firm gets the best available resources from market at competitive terms.
Sourcing follow the supplier identification phase. Sourcing essentially means shortlisting the best source to buy the requirements considering all important and relevant parameters. Progressive organizations prefer eSourcing (or electronic Sourcing) to the traditional sourcing methodology. In eSourcing, once the suppliers are brought at technical par with each other, an online reverse auction is conducted between suppliers. The supplier cannot see the details of other suppliers, but can only see the price quoted by them. In a competitive scenario, the costs are driven down, shrinking the supplier margins and ultimately passing on the benefits to buying organization.
Contract Management is the last stage of Strategic Sourcing Process cycle, where the impetus is laid on ensuring that the deliverables of the contract are executed smoothly. It is a crucial phase to for the Strategic Sourcing Process Cycle as market and industry dynamics effect the contract terms.
Strategic Sourcing Process is a cycle and not a one time initiation. It is way of thinking keeping long term objectives in focus. It is about time that in a fiercely competitive market where companies are gunning for consumer space, Strategic Sourcing is implemented as a cost optimization solution.
Author: P. Mane, ODScommerce
With the current state of economy, it’s more than likely that most organizations would have fallen short of their cost reduction targets for the year. With a steady decrease in industrial outputs, corporations are left with no other alternative but to find methods for cutting costs in business and adhere to the cost reduction targets this year. But, how does one go about doing this?
In a series of 3 articles, we will browse through 3 simple yet effective ways of cutting costs in business while avoiding friction at your workplace.
Our first step toward cutting costs would be Value Analysis. Surely, you’ve heard of it and either implemented it or rubbished it saying it’s only for the ‘Top Notches’. But, is it? After all, it’s not rocket science and is an area to work on for Small Medium Businesses (SMBs) as well.
Step 1 for Cutting Costs in Business : Value Analysis/Value Engineering
The root cause for the ‘Cost’ component can be traced back to the original supplier for the item and the Supply Chain that advances the same item to you. Quite often the suppliers and the Supply Chain Management personnel (or engine) are themselves not aware of the areas where they can tap a potential cost leakage. A thorough Value Scorecard should be developed to analyze the following aspects and their sub-components depending upon the type of item (or category):
- Manufacturing costs
- Quality costs
- Delivery costs
- Purchasing costs
- Overhead costs
- Engineering and design
It’s more than likely that the Supplier lacks the expertise and ‘intent’ to evolve with this exercise. This is where ‘Collaboration’ comes into picture. A detailed value analysis, based on cost centers for matrices developed in tandem, by you and the supplier will help you understand the cost structure better.
The next step is to quantify the benefit. Once, step ONE is out of the way. Ask the supplier to reduce (say) 5% cost in these areas without compromising on quality.
Caution: Merely, putting up a stipulation will not serve the purpose. It has to be backed by adequate compensations for the suppliers in order to motivate them. It can even be in soft terms like,
- Payment term lenience
- Consolidated Orders
- Scrap Sale at reduced (or free) rate
- Freight or FOB rate changes
- Any thing that makes them happy and incentivizes them!
But, how do you go about it? Do you leverage IT for this initiative or go the traditional route of manual calculations?
Purely, up to you! It’s about you believing in the necessity and comprehensiveness of the exercise. Needless to say, an IT Enabled application would be a better and a systematic option, but the other school of thought could be “Let me see if it works and then take a call!” Good for you!
That brings us to the end of our first edition of the series 3 Steps for Cutting Costs in Business. Watch this space for more action…
Author: P. Mane, ODScommerce
Originally posted on Rishabh Software Blog
The landscape of the supply chain has changed drastically over the past five years. It went from local to global in manufacturing, procurement, sourcing, logistics, and customers. As such, there are some major challenges in the supply chain network:
- There are no boundaries within the network.
There are no physical or virtual boundaries left within the supply chain. For example, the customer could be in North America and ordering a product via the Internet from Ireland—but this creates a problem. Why? Each party involved is not aware of the rules and regulations they need to comply with, and do not understand that an order confirmation from the manufacturer is crucial to the retailer’s (manufacturer’s customer) delivery schedule to the end consumer.
- It is difficult to make the pieces of the puzzle fit cohesively.
Each process within the supply chain needs to work together. For example, it’s crucial for a warehouse to know when the shipment will arrive. If the warehouse is unaware of the delays caused by the transportation company, it will cause labor/capacity and equipment availability issues.
- Not being able to adapt to rapidly changing customers’ preferences.
Organizations need to understand the shifts that are occurring in the customer’s requirements. For example, Coca-Cola recently came out with a product that contains 90 calories for diet-conscious customers. In this scenario, if the organization’s manufacturing and product development was not aligned with the customer’s requirements, an organization could in turn lose these customers.
Now, the daunting question: How can an organization eliminate these challenges/risks and still make its supply chain work accordingly.
The answer: E-commerce.
E-commerce is an electronic exchange of data or a transaction, like an electronic funds transfer (EFT), or an electronic data interchange (EDI). E-commerce within the supply chain helps create links for each business process. This allows organizations to communicate and collaborate with trading/business partners. There are benefits for using e-commerce- based applications:
- All information regarding changes in rules and regulation are communicated between trading partners. The shipper is aware of the new laws regarding the delivery destination or location. For example, in the US, the new security program known as the “10+2 rule” mandates that advanced shipment notification (ASN) has to be provided to customs 24 hours before a shipment arrives at US borders.
- Any changes in the demand for a product/service are communicated instantaneously either via the Internet or through data interchange (portal, EDI, e-mail etc.). This eliminates the excess costs associated with manufacturing and delivering products where there is no demand—or spike in demand.
- Knowing what inventory is in the store, or in the plant is essential when confirming customers’ orders. By using e-commerce, organizations can get better visibility into inventory levels—regardless of where the inventory is residing. All details of inventory will be provided via ASN or an inventory portal.
Organizations must be aware that the transition to e-commerce needs to happen in a manner where the following considerations are taken into account:
- Clearly define each business process. If business processes aren’t clearly defined, gaps will be created within an organization’s supply chain.
- Provide adequate training on e-commerce applications to all parties involved (both internally and externally). If an organization doesn’t provide sufficient training to staff and suppliers, workarounds will be created to avoid using the application which in turn creates additional costs for an organization.
- The user interface (UI) make sure the e-commerce application is user-friendly. If organizations don’t provide the proper interface, it will take longer to process a transaction because more time is spent understanding the application than actually processing a transaction.
Organizations with an integrated supply chain reap the benefits of faster development cycles for a product and handle changes in the market place without creating a fiasco for the parties involved. With the help of an e-commerce enabled supply chain, companies are able to expand their business into emerging and existing markets and can streamline their business processes with customers and suppliers.
How about you? What are your thoughts on the benefits or drawbacks of e-commerce? I welcome your comments.
ODScommerce’s solutions and services are geared towards Small and Medium Businesses by understanding the challenges faced by these businesses and catering to them. By partnering with ODScommerce, clients would experience the following:
Flexible Solutions made to order
ODScommerce offers solutions that are customized and scaled to meet the needs of individual sourcing organizations, no matter where they are in their implementation of e- Sourcing.
ODScommerce combines a SaaS architecture platform with consulting services to provide a complete Knowledge Process solution for Small to Medium size businesses in sourcing and procurement. Customers may choose to utilize ODScommerce’s complete solution or incorporate a selection of services – such as Spend Analysis, Sourcing Management, or Contract Management – into their sourcing processes.
Each solution adapts to existing business models with procurement /sourcing processes, allowing companies to control the way they acquire goods and services. In as little as 24 hours, the configurable ODScommerce solution can be implemented and fully functional.
In addition, ODScommerce’s OnDemandservices can be deployed in different ways that provide customers with the level of support they need and the control they desire such as self-serviced, managed and full-service.
Clients could also choose project services where ODScommerce provides professional consulting services for those customers looking to expand on the event services, move into an unexplored areas, or improve upon functionality that already exist in their organizations.
Furthermore, ODScommerce provides a compelling portfolio of Knowledge /Business Process Outsourcing Services that can be counted on to deliver value by a professional team that understands business drivers and what is necessary to bring clients to world class standards to compete in the global environment. These services are available with the ODScommerce solution as individual services or add-ons to the event services.
Pittsburgh, PA October 30, 2009 – ODScommerce, Inc’s strategic platform supports the valued premise that the market has been clamoring for a single provider that can deliver the expertise, benefits and talent management solutions without the ‘heavy lifting’, licensing fees or proprietary engagements often associated with similar offerings from ERP providers or large consultancy groups. The ODScommerce platform is fast becoming that vendor of choice because combining On Demand Services designed for the SMB market for those organizations that are looking to drive greater consistency through Knowledge Process Outsourcing solutions across their organizations and at the same time offering a pathway to increase efficiency while reducing costs in a SaaS environment appears to be a winning combination for procurement and sourcing supply chain services.
“The current global economic downturn is changing the way global corporations are valuing cash on hand and capital investments. Until the markets become more stable, capital investments will proceed with caution. Those allocating funds for software investments will likely look for alternatives to large scale, costly implementations and enterprise licensing scenarios. The impact is that Software as a Service (SaaS) is now taking the lead for suppliers, customers and the enterprise are becoming the key deployment arm that address these realities to minimize the Total Cost of Ownership (TCO) and this is being done through world-class practices known as Knowledge Process Outsourcing (KPO) solutions.” stated Ramesh Mehta, CEO and President ODScommerce, Inc.
The SaaS enterprise network is fast becoming the backbone for the SMB markets and the net market effect is that an increasing number of companies are adopting a SaaS management model called “online workspaces”, a ubiquitous Service-Orientated-Architecture (SOA) solution that offers “on-demand services” while providing these exceptional benefits to the business. SaaS advantages are compelling because of its quick and cost-effective deployment while shifting costs from capital to operational budgets with the vendor. Accepting the proven concept of anywhere, anytime access via the web thus enabling streamlined processes for business operations with increased productivity, exceptional ease of use and eliminating formal training requirements for end user is formidable. And “pay-as-you-go” event pricing to acquire “on-demand” KPO services is most attractive.
To Read More on this: http://www.odscommerce.com/news-events/20091109.php