Trans-Organizational Sourcing Functions (TOSFs)

By Scott Walls

Trans-Organizational Sourcing Functions or TOSFs are procurement super-structures.  These entities exist to aggregate spend across multiple sub-organizations.  For example, if a holding company wanted to aggregate spend across its sub-companies, it would do so using a TOSF (think Sears holdings over K-mart, Sears, etc.).  The TOSF would aggregate spend from all sub-entities and group it according to the commodity being purchased.  It would then publicly auction this aggregated spend amongst like suppliers and place the contracted results in a centrally located marketplace (see also Shared Marketplaces & Marketplace Content Strategy).

TOSFs are to holding companies and governments (state, national), what procurement departments are to large organizations.  Procurement aggregates inter-organizational demand, where as the TOSF aggregates intra-organizational demand.  These new super-structures represent some of the newer thinking in procurement operational improvement today.

 

About SRM Plus

SRM+ is a boutique procurement business consulting firm.  We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP).  Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers.  Visit us at www.srm-plus.com.

The Strategic Procurement Paradigm

By Scott Walls

This is a quick BLOG to introduce the concept of the Strategic Procurement Paradigm.  The SPP has been around for years.  It was created on the principles of reducing the net Cost Of Goods Purchased (COGP) by electronically integrating buyer/supplier process touch-points.  While the SPP decreased the direct Cost Of Goods Purchased (COGP) through electronic connections and spend negotiation, it had a less impactful effect on the net COGP due to the increases in administrative costs required.

The mid 1990s saw the emergence of spend management software vendors such as Ariba and Commerce One.  Many soon followed and the drive to leverage spend eventually worked its way into the traditional ERP in the form of what is know known as the Supplier Relationship Management(SRM) application suite.  The functionality of the larger suites and their integration with the “back-end” ERP applications (ledgers, projects, AR, assets, inventory, etc.) makes them the product of choice, however the administrative costs required to make this happen mute any real enthusiasm and have prevented this model from reaching its real potential (see The Total Supply Integration Paradigm for potential solutions).

The Strategic Procurement Paradigm has four high level steps:

1. Identify pools of repeatable spend not currently on contract.  This is typically done via BI tools by a business analyst.

2. Competitively auction pools of repeatable spend amongst like suppliers. This function is performed using the Strategic Sourcing application (often in concert with a supplier portal).  This same application can also be used to sell existing assets.

3. Automate buyer/supplier source to settle processes with key, contracted suppliers.  This is most often done via an eprocurement application connecting with some level of external catalogs and leveraging a newer, more simplified requisitioning user interface.

4. Continually drive increasing amounts of spend on contract via this process.  This is part of an overall business strategy to locate spend pools whose contract and integration benefits exceed the costs of integration and catalog maintenance.

SPP Benefits – This model provides a better requisition user interface, lowers the overall COGP, and allows buyers to remove the burden of constant sourcing (source once, place in central location for request/purchase, and move on to sourcing other items).

SPP Disadvantages – This model favors larger companies.  The cost of integrating and managing item catalogs, forms and/or connections adds up; particularly for the smaller company with a lighter IT and administrative support cast.  In addition, the simplified requisition UI does not mean it is simple.  Requesters still struggle with these pages.  MOST IMPORTANT – these applications require the requester to understand the cataloging method (internal item, punch-out, form, etc.) in order to know where to go and how to make the purchase.  These type of complexities limit adoption similar to if Amazon required book-buyers to understand architectural nuances prior to being able to order books.

 

About SRM Plus

SRM+ is a boutique procurement business consulting firm.  We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP).  Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers.  Visit us at www.srm-plus.com.

The Total Supply Integration Paradigm

By Scott Walls

This is a quick BLOG to introduce the concept of the Total Supply Integration Paradigm (TSIP).  The TSIP was introduced to solve the issues created by its predecessor, the Strategic Procurement Paradigm (SPP).  The goal of the SPP was to reduce the net Cost Of Goods Purchased (COGP), by driving procurement spend onto contract.  The main issue with the Strategic Procurement Paradigm was, that as more spend was driven onto contract, the costs of supporting the related items and transactions increased dramatically.  The limited the adoption of the SPP.

The TSIP is the next generation of the SPP.  It focuses heavily in two major areas – content management and settlement management.  The content management solutions outsource the creation and management of content (eliminating the item mgt function and providing better mgt tools) and the settlement management solutions outsource the settlement of transactions (reducing the invoice and payment mgt functions).  Furthermore, these new supply integration solutions often provide more mature content/settlement mgt tools and allow for deep integration with existing SRM applications, business processes, reporting, and employee evaluation metrics. 

TSIP Benefits – The TSIP is allowing organizations to become self-funded, at a minimum.  The content management applications are outsourcing the catalog management, with the exception of approval, and providing better catalog management tools.  The settlement management is not only reducing the labor expense related to invoice and payment management, but providing revenue generation (settlement rebates, contract rebates, etc.).  A good rule of thumb for revenue expectations is 4 million annually for every 1 billion in procurement spend.

TSIP Disadvantages – some of the integration points will need time to mature.  For example, SciQuest’s Spend Director does not allow for change orders, meaning orders are essentially fill or kill.  They allow procuring orgs a work around (manually updating orders in both the marketplace and the SRM application), but this is not realistic.  Over time this dynamic will disappear.

TSIP Conclusion – with the ability to reduce OpEx by greater than 30% and create minimum of 4 million in annual revenue for every 1 billion in spend, the results are too dramatic to ignore.  Every organization, particularly those of size, should be investigating supply integration solutions and the TSIP.  Also, they should not be approached as one-off solutions per se, but more as a group of related applications needing to be fully integrated into the procurement application, process, and reporting landscape.

 

About SRM Plus

SRM+ is a boutique procurement business consulting firm.  We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP).  Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers.  Visit us at www.srm-plus.com.

Marketplace Content Strategy

By Scott Walls

Marketplace Content Strategies align the creation, management, and usage of marketplace purchasable content with the overall procurement business strategy.  Having a well defined marketplace content strategy allows both the providers of content (sourcing function) and consumers of content (requesters) to understand the value of the marketplace and use it appropriately.

Here are the three steps required to create an Marketplace Content Strategy:

Step 1 – Understanding Marketplace Data Elements or “Content Structures”

First, the group designing the marketplace must understand the content structures available to them.  Content Structures are the marketplace term for the data elements being used within an organizational marketplace to represent purchasable content (items, forms, catalogs, contracts, suppliers, procuring orgs, content consumers, and content providers).  Content structures vary based on the organization’s business requirements.  Each organization needs to ensure the content structures required to represent their business are available (on-contract/off-contract, requisitionable/non-requisitionable, sub-org security, sorting classes, product priorities, etc.).  In addition, the Shared Marketplace Model allows for multiple versions of the same content structure (i.e. Microsoft being vendor 123 in one ERP/SRM application and vendor 123 in a second ERP/SRM application).  Hence, the organization needs to understand how those values in multiple worlds are linked correctly within the marketplace.  For a more detailed explanation of marketplace content structures, click here.

 

Step 2 – Define Marketplace Content Structure Rules

Second, the design group will need to create the content structure rules.  Content structure rules transform a collection of data elements into an intuitive, functioning marketplace.  They define what type of content will be in the marketplace (contracted content, requisitionable content, etc.), how that content will be organized (under contracts, organized by supplier), how it will be presented to the requester upon search (recycled appears first in a search, all items in one results box), and how ALL requesters (even the most inexperienced) will understand what to do with the content when located.  When designing the marketplace, it is not enough to simply say contracts and suppliers will exist in the marketplace.  There should be well defined rules telling market participants what content, contracts suppliers, etc.  These are content structure rules.  For a more detailed explanation of marketplace content structure rules, click here.

 

Step 3 – Create Measurable Content Objectives

Lastly, the design group will need to create measurable content objectives.  Measurable content objectives indicate the extent to which marketplace content is supporting the overall business procurement strategy.  Content objectives can be organized around 5 basic criteria (this can differ by engagement); scope, adoption, breadth, depth, and payback.  Each criteria must have a definition (i.e. the scope of the market is all spend on contract regardless of whether or not it is initiated using a requisition) and an evaluation criteria (total number of contract-related order lines purchased / number of contract-related order lines originating from the marketplace).

Additionally, content objectives can exist at the macro level (marketplace as a whole) or the micro level (for a given sub-org or by sourcing group).  For example, if a firm wants to evaluate the payback numbers (revenue generation) for its content, it may want them market-wide, but also at a level similar to how their employees are organized.  The latter would be helpful in evaluating one group of sourcing agents against another group.

To obtain understand more about or discuss what an appropriate Marketplace Content Strategies might look like in your organization, email Scott Walls at scottwalls@srm-plus.com.

 

 

About SRM Plus

SRM+ is a boutique procurement business consulting firm.  We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP).  Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers.  Visit us at www.srm-plus.com.

Marketplace Content Structure Rules

By Scott Walls

Marketplace content structure rules are a set of rules governing the content within organizational marketplaces.  They are created by the providers of marketplace content in an effort to clearly indicate to all marketplace participants what content is in the marketplace, how content is located, and how that content is to be used.  Directly, or indirectly, the underlying principle in most, if not all content structure rules, is to make the presentation and utilization of purchasable content by the most novice of consumers as intuitive as possible.    The goal of marketplace content structuring is to increase the organizational adoption of the marketplace while simultaneously decreasing the organizational support required for the marketplace’s transactions. 

The organizational value of a marketplace increases along with the amount of purchasable content in that marketplace (higher spend on contract, larger rebates, one-stop shopping, etc.).  Unfortunately, so does the acquisition diversity (acquisition diversity = content complexity).  The diversity of items being acquired (on contract vs. off-contract, req vs. no req, fixed vs. variable pricing, lease vs. purchase, static item vs. dynamic item pricing or configuration) increases the need for clear and well communicated set of content rules allowing the consumer of content to intuitively locate and purchase the right goods and services for the right price. 

While each marketplace’s content differs according to the culture, needs, and size of the organization, all marketplace content structure rules fall into one of four categories.  Those categories are as follows:

1. Scope – scope-related rules articulate the business definition of the content within the marketplace.  Is the marketplace’s scope limited to a functional area (i.e. the scope is technology goods and services); limited to pre-sourced or org-wide contracted content (i.e. the scope is goods and services pre-negotiated as part of statewide contracts for all state-agencies); or simply wide-open (i.e. if the organization can link to a good or service electronically, it is in the marketplace).  Some scopes are easier for the most novice of requesters to intuitively understand.  The goal of the scope, as with all structure rules, is to make locating and using marketplace items as intuitive as possible for the most novice of requesters. 
2. Organization – organization-related rules define the data elements used within the marketplace as well as how those data elements related with one another.  In a technical sense, this could specify the data elements being used to represent marketplace content; supplier, contract, catalogs (marketplace, remote, proxy, instructional), item or form.  Or, in a functional sense, this could specify the relationship between those data elements; all goods and services must belong to a contract and a supplier, but a supplier can have multiple contracts.  Organization rules help the provider of content understand how they are going to represent content within the marketplace (which has also been conceived in a way that supports the most novice of requester).
3. Presentation – presentation-related rules define how the marketplace’s content will be presented to the party inquiring regardless of the method (window shopper or via a third party application such as PeopleSoft, Oracle, SAP).  Most requesters of marketplace content are familiar with Amazon-like purchases (type in text, search for item, select item, check-out), hence many successful marketplaces strive to present content in this fashion (starting with the known).  When this is not a possibility (i.e. non-requisitionable items such as a rental cars or temporary staffing), both the presentation rules and the utilization rules (see below) take on added importance.  Organization rules are solely based on the consumer experience and making complex goods and services as intuitive as possible.
4. Utilization – utilization-related rules define how a consumer will use the content being presented.  More specifically, if a consumer/requester searches for an item and receives a link to a punch-out, do they understand how to use this link, what a punch-out is?  Do they know they now need to access the supplier’s site, potentially re-search, load a cart on the supplier’s site, check-out back to the marketplace (and possibly back to the SRM application)?  As the scope of marketplace content is increased, the number of acquisition instructions increases, are these instructions being stored at the right place in the transaction…at all?  Utilization rules govern the methods in which consumers of content will quickly and easily understand or learn how to acquire all items that are not intuitive.  An example of a good utilization rule would is adding a “How to Purchase” link at the item level that is returned along with the item search.  Hence, when a requester searches for a rental car (something not usually purchased via a requisition or using a marketplace…but could be considered in-scope if it is on a statewide contract), they would also receive detailed purchase instructions for this non-standard type if purchase.  Utilization rules, like presentation rules, are solely focused on the consumer experience.

 In short, a marketplace could have the best content in the world, but if the providers of content cannot design, deploy, and articulate clear, intuitive marketplace content structure rules, then all participants will struggle with the content in the marketplace and how to correctly use it.  This marketplace is likely to underwhelm the organization, either because it offers too little content or because the content it offers is too complex for the infrequent or novice consumer; both issues limit the overall adoption of the marketplace.  Well designed marketplace structures maximize comfortable, successful adoption well beyond the purchasing savvy and/or F&A consumers, this achieving the marketplace content structure goal.

* To understand how to use content structures and content structure rules within an overall marketplace strategy, see Marketplace Content Strategy

 

About SRM Plus

SRM+ is a boutique procurement business consulting firm.  We provide procuring organizations with the strategic and tactical consulting services required to dramatically reduce operational expenses, create revenue streams (1 million per every 200 million in spend), and decrease their Cost Of Goods Purchased (COGP).  Whether defining a strategy, creating measurable objectives, designing / deploying solutions, or creating a continual improvement framework, SRM+ wants to turn your cost centers into cash centers.  Visit us at www.srm-plus.com.

Marketplace Content Structures

By Scott Walls

Marketplace content structures are the data elements used represent purchasable content within an organizational marketplace.  This BLOG highlights the common content structures found in most marketplaces.  Where relevant, examples of how marketplace content structures can be governed by marketplace content structure rules is provided (marketplace content structure rules transform marketplace content structures into an intuitive, functioning marketplace).  For more information on marketplace content structure rules, read the BLOG entitled Marketplace Content Structure Rules.

The most common marketplace content structures are as follows:

Items – this content structure represents the goods and services being presented within the marketplace.  The item description is one of the few data points that all participants know and most good searches are based on this variable.  Content structure rules related to scope help consumers understand what items can be found within a marketplace, rules related to presentation help consumers understand how to search through those items and rules related to utilization help consumers understand how to purchase those items once they have been found.

Forms – this content structure allows requesters to request items that can’t be represented within a marketplace by entering free form text into a predetermined set of fields (description, qty, rate, etc.).  When an item’s basic element(s) prevent it from being represented within the marketplace (variable pricing component – lease pricing depending on term, RFQ pricing, or highly configurable product not supported by a supplier’s site/remote catalog), forms are the vehicle for creating requisitions.  Content structure rules related to scope help consumers understand what forms can be found within a marketplace, rules related to presentation help consumers understand how to access the right form and rules related to utilization help consumers understand how to purchase items using a form.

Catalogs – this content structure represents supplier-specific (sometimes even contract-specific) groupings of items.  The scope of catalogs is wholly dependent on the scope of the items within the marketplace.  There are 4 different types of catalogs, each type is examined below: 

• Marketplace Catalogs – these catalogs reside within the marketplace and contain product details and pricing information.  These catalogs cannot be updated without the permission of the procuring organization.
• Supplier Catalogs – these catalogs reside in the supplier’s marketplace and contain product details and pricing information.  However, due to their dynamic nature (either price volatility or configuration required to obtain pricing) price cannot be stored in the organization’s marketplace.  The marketplace holds the link to the supplier’s version of the organization’s catalog.  These catalogs can be updated by the supplier at any time and require some level of pricing auditing in order to ensure compliance.  These items DO NOT show up automatically in a marketplace search, they require a “proxy catalog” to be loaded and maintained within the marketplace. 
• Proxy Catalogs – these are not complete catalogs, they serve more as product “pointers”.  Proxy catalogs contain only product details, no pricing information.  Instead of pricing information, they point to a supplier catalog (they can be set up to make a call to the supplier’s site, but that has not been done at the time of this writing).  When linking to a supplier’s site, they can access the supplier’s content at various levels (store level, item type level, or at the various item…again, anything other than store level had not been set up at the time of this writing).  These catalogs require manual updating from the marketplace providers of content.  The more detailed they are (PC 8126…) the more often they come up in product searches, but the more often they require review and updating from the providers of content.
• Instructional Catalogs – these are not “real” catalogs, they too serve as “pointers”.  However, these pointers point to purchase instructions for items not available within the marketplace.  Most often these would be for items whose purchase does not require a requisition, but they must be represented within the marketplace.  For example, a sourcing specialist negotiates a contract with a rental car provider and the marketplace content structure rules dictate that the marketplace is supposed to provide product, pricing, and purchase instructions for all items negotiated as part of organizational contracts.  An instructional item would created (a fake item linking to detailed purchase instructions for the rental car, including the reservation web site) and loaded into a catalog for the rental car vendor even though a requisition is not used.  Instructional catalogs/items allow marketplaces to expand their scope rules beyond requisitionable content when necessary.

Contracts – this content structure represents a sub-grouping of items/catalogs for a given supplier.  Contracts are supplier-specific.  This can be helpful when attempting to isolate market-baskets (market-baskets allow procuring orgs to continually evaluate the value of content to itself).  Contracts are also very helpful when rolling up spend across sub-procuring-organizations.  Most marketplaces allow contracts can be negotiated at the parent organization or sub-procuring-organization level.  As with catalogs, the scope of catalogs is wholly dependent on the scope of the items within the marketplace.

Suppliers – this content structure represents the highest level in the item hierarchy.  All other content structures (items, catalogs, and contracts) are subordinate to suppliers.  Suppliers represent the actual supplier of the goods and services.  Marketplaces need to have at least one supplier for every item within the marketplace.  The level of data stored for each supplier depends on the extent of use for the marketplace vs other related applications (i.e. is the order transmission information stored within the marketplace or within an SRM/ERP application).

Procuring Organizations – this content structure represents the organization or sub-procuring-organization doing the purchasing.  This could be one, high-level organization or multiple sub-procuring-organizations depending on the business.  In a shared marketplace model, the high level organization negotiates contracts, leveraging spend across sub-organizations, and shares the items negotiated with multiple sub-orgs by deploying a shared marketplace model (multiple procuring organizations linking to the same marketplace). For example, the State of Georgia contracts with many suppliers on behalf of its 123 sub-agencies (corrections, transportation, juvenile justice, education, etc.).  It then uses its shared Team Georgia Marketplace to broadcast all items to its 123 sub-procuring-organizations.

Providers of Content – this content structure represents the marketplace participants responsible for creating the content within the marketplace; most typically the sourcing function (see also, trans-organizational sourcing functions).

Consumers of Content – this content structure represents the marketplace participants responsible for utilizing the content to order goods and services.  They are typically referred to as “requesters”.

 

* To understand how to use content structures and content structure rules within an overall marketplace strategy, see Marketplace Content Strategy