Source One Round Up: February 5, 2016

on Friday, February 5, 2016

Source One Round Up: February 5, 2016

Here's a look at where Source One experts have been featured this week!




NEW PODCAST: 
Listen in to Source One's Jennifer Engel and Kelly Barner of Buyers Meeting Point discuss the ins and outs of Supplier Diversity Programs as they relate to driving resiliency, sustainability, and adaptability in the supply chain. Engel shares her advice for incorporating these factors in the supplier rationalization process to help ensure your company fully benefits from having a supply base. 
NEW BLOGS:
Cyber Security and Selecting a Provider

Cyber security in today's world of hacks and data breaches it an utmost concern for companies of all sizes. As a result, many companies turn to a managed security service providers for support and expertise. So, what should you be looking for when sourcing a provider? This week, Source One's IT Analyst Iyana Lester shares 5 core considerations for selecting a provider that is best-fit for your organization's security needs. 

Selecting an Agency for Impactful Marketing
According the the Wall Street Journal, we spend about 2 years watching commercials. With all of that time exposed to marketing campaigns of hundreds of companies, it comes as no surprise that most of those messages we ignore. It takes something extraordinary to make an impact on a consumer - that something for Proctor and Gamble was an inspirational message to their consumers in their "Like a Girl". Source One's Marketing Analyst Nicole Mahaffey explains the components of the agency relationship necessary for an impactful marketing campaign. 


Data Breach Response Planning Part II
Data breaches are a nightmare for any organization and while in the ideal scenario all of our preventative measures would fend off any potential hacks, having a response plan in place is necessary. In her follow up article, Source One Project Manager Torey Guingrich explains the necessary components and departments for a data breach response plan,and procurement's role in ensuring your organization is proactively prepared for the worst case scenario. 


FEATURED CONTENT:
The Future of Procurement - 2016 Edition 
With 2015 behind us, there are a number of supply chain trends to reflect on, learn from, and anticipate in the coming year. Shifts in the market has challenged businesses to focus on sustainability, product transparency, and assess all aspects of the supplier and agency relationships. In our Future of Procurement blog series, Source One's executives reflect on the challenges and trends of the past year, as well as share their predictions for what lies ahead for procurement professionals in the upcoming year. 

Get Ready for ISM2016 and the Exec IN Forum
Bringing the Future of Procurement to ISM2016, Source One has announced its partnership with the Institute for Supply Management as the exclusive sponsor the Exec IN forum. The private conference is an extension of ISM2016's Corporate Team Experience, bringing together senior-level supply management professionals of top organizations ($1.5 billion+ revenue) to discuss the challenges and opportunities related to large supply chain operations.

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Supply chain struggles and strategies for eCommerce fulfillment

on Thursday, February 4, 2016

Supply chain struggles and strategies for eCommerce fulfillment

As people have become heavily reliant on technology and increasingly connected, there has been a surge in online sales. This is good for the eCommerce market; however, it presents retail supply chains with a wide range of challenges. In their efforts to meet the rising expectations of consumers, satisfy the need for instant gratification and improve customer service, many companies are having issues with inventory management, order fulfillment and distribution operations.

Today, people can easily find a product they are looking for online and place an order. And, in addition to shopping quickly, they also expect swift shipments. Research conducted by Peerless Research Group, in collaboration with Supply Chain Management Review and Ryder Systems, Inc., recently revealed that 31 percent of buyers expect same- or next-day delivery on locally made orders.

Obstacles in distribution operations
Supply chain leaders are tasked with managing higher volumes of inventory and making faster deliveries, all while trying to offer cheaper shipping fees. This is tough to achieve, considering the cost of order fulfillment is on the rise and can largely be attributed to expenses related to transportation and labor, the study indicated.

The research report also found that dealing with growing shopper expectations, completing orders on time, having high levels of supply chain visibility and managing increasing order fulfillment costs are the main operational challenges companies struggle with. Only 34 percent of those surveyed said that they believe their distribution processes are sufficient.

In an omnichannel environment, resolving such issues is problematic. Multiple platforms translate to different processes and complex data, ultimately expanding the potential complications and risks supply chain managers face.

More retailers are offering consumers the option of ordering online, then picking the products up in-store. This, too, is difficult for companies to manage. According to Neal Leavitt, a contributor to iMedia Connection, research conducted by the JDA Software Group last year found that about 35 percent of people who placed eCommerce orders chose to pick their items up at the physical store location, and approximately half of these consumers ran into an issue while trying to obtain their packages.

"Retailers might experience service failures because picking products from storage and packing them into unique combinations for customers is easier in a streamlined warehouse than in a chaotic store, where other customers need to be helped and orders can be misplaced," JDA Software Group Senior Vice President Wayne Usie told Leavitt.

Strategic sourcing solutions
And it is not just fulfilling online orders that sellers are struggling with. They also have to deal with returned merchandise. Multichannel Merchant recently explained that, "Every year, 15 percent of goods sold are returned or deemed excess, and many retailers do not have adequate systems in place to manage this flood of items. The traditional reverse supply chain is long and complicated, with goods traveling from consumer to retailer to vendor to liquidator to wholesaler to reseller and finally, to a secondary buyer."

However, the source also added that companies can save time and streamline operations by leveraging reverse logistics technology.

Over the next year, many businesses plan to focus on increasing profit margins, improving customer service and satisfaction, making faster deliveries and lowering costs, the PRG study revealed. One strategy the survey participants said has helped with reducing costs and increasing operational efficiency is outsourcing some supply chain functions, such as transportation and distribution.

Another approach that retailers can take to achieve these goals, and which 43 percent of companies have already begun to do, is to invest in supply chain software and applications that provide executives with enhanced access to essential metrics and analytics, as well as real-time visibility.

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Sourcing Raw Materials - Looking Beyond Price

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There’s no doubt, sourcing raw materials, like many categories of spend, is nuanced. Impacted by a number of factors, it comes as no surprise that costs of raw materials are subject to fluctuation in the market place. So, when it comes to purchasing raw or direct materials, an organization cannot just take a look at pricing trends, conduct a three-bid-and-buy, and call it day on their sourcing initiative. Smart purchasing only begins with pricing trends, but also includes other factors such as assessing the various economic and environmental drivers impacting supply and demand, and additional contending supplier operations. Before signing your company’s name to the dotted line with a seemingly competitively priced supplier, there are a number of considerations to keep in mind to assess a best-fit provider beyond their proposed pricing:

Climate Condition and Risks to the Supply Base
Companies are quickly realizing the impact climate challenges have on their business models and operations, including the shortage of key resources. Storms and other natural disasters are major disruptions for supply chains resulting in damaged facilities, reduced product demand, and lost productivity. As a result, organizations must take a look at not only the geographical regions of their supply base and understand the potential threats of natural disasters, but also the supplier’s ability to prepare and respond to minimize the cost of a supply chain disruption, should the worst case scenario occur. 

Political Environment
Global sourcing is often an enticing and in some cases a necessary option for organizations sourcing raw materials, offering lower costs, new opportunities, and access to unique resources. Along with these benefits, so comes the political risk of sourcing in these new territories. Companies looking to globally sourcing raw materials must be strategic and systematically assess the political risks associated with the region or country. While pricing may be lower in other countries, procurement departments must also take a look at the regulations in place that impact other areas of operations, and as a result, costs such as insurance, logistics, customs, and international banking fees. 

Quality Assurance
While reducing costs for many procurement organizations sounds like an immediate win, in some cases it may come at the expense of quality, compliance, and sustainability. Comprehensively assessing your suppliers and verifying product quality and conditions is critical. This may include obtaining references and conducting facility tours.

Distribution and Logistics:
Understanding the network used by your contending providers to supply a facility is crucial to determine the ideal structure to support your organization’s needs. For example, a low cost supplier may not be equipped enough with the necessary tanks to store the material to be delivered on a timely basis. As a result, in addition to proposed pricing companies must also look at a supplier’s delivery method and lead time, and the availability and capacity of storage facilities.

Companies need to not only look at the past changes in the costs of these raw materials, but also anticipate how these considerations impact future changes in costs. These drivers impact the costs of a raw materials regularly, and must be monitored proactively to ensure a company is making smart purchasing decisions.  However, many organizations lack the time and resources to manually track all the constant market changes relative to a particular commodity. This is where predictive analytics can help. Predictive Analytics provides increased visibility when managing costs and suppliers – working to streamline the strategic sourcing process by taking into consideration market changes, data, indices’ commodity pricing, and other factors. With clear insight into these market changes, organizations can make smarter and faster business decisions in regards to validating pricing and sourcing the best-fit supplier. 

This is just one of the many benefits of implementing Predictive Analytics in strategic sourcing and procurement.  To learn more about the advantages and new opportunities of Advanced Analytics, check out Source One’s latest whitepaper: The Future of Spend Management: Predictive Analytics.” The new white paper explores the gaps that lie between traditional and advanced analytics and how utilizing these tools is shaping the future of procurement. 
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FMC directs 'supply chain innovative teams' to resolve port congestion issues

on Wednesday, February 3, 2016

FMC directs 'supply chain innovative teams' to resolve port congestion issues

West Coast ports in the United States have faced an ongoing battle over the past year to maintain productivity despite high levels of congestion, delays and disruptions.

To mitigate these issues, Federal Maritime Commission Chairman Mario Cordero announced this week that the FMC unanimously voted to have Commissioner Rebecca Dye head an engagement project to "work with U.S. international supply chain stakeholders to form supply chain innovation teams that will develop commercial solutions to supply chain challenges and related port congestion concerns."

Industry leaders asked for commercial shipping solutions
Dye will collaborate with  the stakeholders of global supply chains, specifically those within companies linked to the San Pedro Bay ports of Los Angeles and Long Beach, California. Cordero also added that the project intends to identify and address any problems that could threaten future operations and that more details would be released at the FMC's public meeting later this month.

The source also revealed that this development is independent of the current analysis of PierPASS's extended terminal gate program being carried out by the Bureau of Trade Analysis. Cordero explained that the issued order to have Commissioner Dye address inefficiencies in the supply chains will contribute to the ongoing efforts being made to "encourage collaborative, innovative supply chain integration."

"Their message is clear," Dye said. "We need to assemble a committed team of industry leaders who, by stepping outside of their usual silos, will identify commercial solutions that enhance supply chain effectiveness, reliability, and resilience."

She also added that the effectiveness of this project will be dependent on industry leaders' participation and that maintaining privacy throughout the conversations and planning will be important.

Port demurrage and delay impact
According to American Shipper, Cordero said in an interview last month that primary goals for the FMC this year are to resolve congestion-related issues affecting ports by collaborating with supply chain stakeholders and to focus on alleviating the negative repercussions experienced from an increase in large container ship vessels.

Previous protracted negotiations between shippers and the International Longshore and Warehouse Union had led to detention costs and delays. About 250 of these complaints, which had an accumulative total of approximately $667,000 in fines, were handled by the Consumer Affairs and Dispute Resolution Services office of the FMC.

In the FMC announcement, Dye noted that the innovative teams and engagement project intends to build stronger, more resilient supply chains, rather than introduce new regulations.

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The Future of Procurement: 2016 Edition Part I

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2015 was quite a year for the supply chain industry. Constant market changes have placed an increased pressure for companies to evolve and adapt to potential threats, leading many to turn to the procurement and strategic sourcing functions (both internally and outsourced) to remain competitive. Shifting global landscapes have prompted companies to evaluate where they seat supply chain operations; food recalls have created a greater consumer demand for product transparency; a growing environmentally-cautious consumer base has created pressure for companies to make more ethical and sustainable business decisions; advances in technology and data analytics are prompting companies to evaluate all aspects of their supplier and agency relationships.
So, what does all this mean for procurement in 2016? We sat down with our executives at Source One and asked them to both reflect on recent trends and look into their crystal ball to see what lies ahead for supply management in the New Year. 
In Part I, of this series we'll explore how Procurement is growing as a strategic arm for organizations, how data visibility remains an ongoing challenge, and how savings isn't the only metric procurement and sourcing departments are focused on anymore. 
Increased Strategic Reliance on Procurement
More organizations are relying on Procurement to lend their subject matter expertise in business decision making - a trend that has been gaining ground recently, and will be a hot spot for Procurement pros in 2016 and the years to come. What may have begun as an opportunity for companies to reduce costs during times of lull, organizations are now leveraging Procurement proactively to guide company-wide investments 
beyond direct materials, in even previously untouched categories such as Marketing, Human Resources, and Professional Services.
Why? The proof is in the competitively-priced pudding. Think back to all the media agency reviews that took place this past year. Major companies in industries ranging from consumer packaged goods to automotive have revisited their marketing spend with the goal of optimizing budgets - with Procurement at the helm. Lending subject matter expertise and market intelligence, Procurement departments review everything from agency fees, production costs, and payment terms and conditions. 2016 will be the year this trend kicks in to full force as more organizations realize the budget optimization potential of bringing in the support of Procurement into “untouchable” categories.
Challenges Stemming from a Lack of Spend Data Visibility
While companies are in the process of growing, right sizing, investing in different tools and technologies, or simply making purchases for an array of organizational needs, losing spend visibility is an all too common challenge – a challenge Source One’s executives know will continue into 2016 and further in the future. With a fresh start in the beginning of the year, Source One’s spend management experts recommend that companies resolve to take a deep dive into their spend. Conducting a spend analysis exercise will not only bring to light opportunities for cost saving initiatives, but also provide much needed insight for strategy readjustments.
Focusing on More than Savings
Procurement departments have long demonstrated their value based strictly on savings – but simply being measured on savings is selling procurement short. In fact, many best-in-class organizations actually de-emphasize savings, focusing procurement’s efforts on driving sustainability, managing supplier relationships, and mitigating supply chain risks – and measuring themselves accordingly. Source One’s executives’ anticipate 2016 being a year of shifting KPIs, as organizations large and small begin to catch on to the added value procurement brings to the table in impacting organization-wide strategies.

What else does the future have in store for spend management in 2016? Stay tuned for more predictions and reflections from our executives. 

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Humanity United tackling supply chain modern slavery with technology

on Tuesday, February 2, 2016

Humanity United tackling supply chain modern slavery with technology

Over the past few years, there have been a number of high-profile cases highlighting the issue of inhumane working conditions along global supply chains. And while some laws have been enacted to combat the issue, such as the California Transparency in Supply Chain Act and the United Kingdom Modern Slavery Act, both of which require businesses to publicly disclose the measures taken against human trafficking, they have not been entirely effective.

However, The Partnership for Freedom is trying to change that. Led by Humanity United, in collaboration with several United States government agencies, including the Departments of Justice, Housing and Urban Development, State, Health and Human Services, and Labor, the PFF was created "to spur innovative solutions to human trafficking challenges." In October 2015, the organization launched the contest "Rethink Supply Chains: The Tech Challenge to Fight Labor Trafficking," calling on companies to propose technologies that could be used to help eliminate identify and eliminate occurrences of slave labor.

Mitigating unfair labor practices
This week, the foundation the announced that the top finalists are Good World Solutions, IST Research, Mobile Accord, Inc., Sustainability Incubator and Trace Register and Ulula. All of these businesses will advance to the next round to collaborate with experts on the development of their ideas. In addition, each company will be granted $20,000. The official winner will be chosen in April of this year and will receive $250,000. The runner-up will be awarded $50,000.

"Forced labor in global supply chains is a systemic problem. The solutions surfaced by these finalists leverage technology to combat this problem by bringing transparency to global supply chains and elevating workers' voices across industries," Humanity United Director of Investments Catherine Chen said in a statement.

In the press release, the PFF outlined the proposed solutions of each of the finalists which include mobile mapping technology, data analytics systems for scraping Web data, social media monitoring and traceability software.

This is not the only measure Humanity United has taken to mitigate slavery in global supply chains. KnowTheChain is another project the group created, in partnership with the Business and Human Rights Resource Centre, Verite and Sustainalytics, to illuminate the growing issue of forced labor. Last month, the foundation released the "Transparency Snapshot," a pilot benchmark report that examined 20 businesses throughout three different sectors: food and beverage, apparel and footwear and Information and Communication Technology, or ICT.

Examining legal compliance
The report found that the footwear and apparel sector has the best transparency and disclosure practices, scoring 65 out of 100, whereas the ICT industry scored the lowest, with a score of 34. And while 75 percent of companies formally recognize the chance of forced labor in supply chains, only a quarter have publicly disclosed how workers can access these policies and standards.

"By benchmarking, we hope to incentivize companies to adopt measures that go beyond legal compliance to more meaningfully address this issue by adopting policies and practices that truly ensure the well-being of workers and reduce labor exploitation," Humanity United Vice President of Investments Ed Marcum explained in the announcement of the report.

He also added that, through this process, businesses will be able to stand out as leaders in their industries by demonstrating social responsibility and that it will also identify the companies that are not doing enough to ensure safe working conditions for employees.

"Transparency Snapshot" is one of three benchmark reports that KnowTheChain said it will publish this year.

As investigations into supply chain practices continue, companies will face increasing pressure to identify the measures they have taken to halt forced labor and modern slavery.

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Can we really trust the procurement process in 2016?

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Arguably, one of the greatest strengths of any Procurement team is their established process. This process is tried and true, carefully followed, and executed without question. In many industries, this process works, and can be useful in identifying and securing value. However, with Procurement becoming more deeply embedded in non-traditional categories, applying the traditional process no longer works.

I recently pitched my adaptation of the marketing procurement process to a Procurement director of 20+ years. Following the pitch, this director commented that the process was very impressive, but that he was far more concerned with my social skills, and my ability to relate well. He finished with a profound statement, commenting that “Procurement is currently viewed [in this organization] as a value-add, but the instant [procurement] becomes a hindrance, stakeholders will quickly disengage.”

I found his sentiment echoed in an excellent podcast featuring Bob Rodwell on the Art of Procurement. Prior to working in Procurement, Rodwell spent time in Marketing and comments about the importance of relationships in marketing, and the rigidity of the procurement process .Through his career, Rodwell has identified a marketer’s three major complaints about Procurement. “[Procurement is] much too rigid, too slow, and does not understand what [marketers] are trying to accomplish.”

The question remains, how does Procurement transform their image to become palatable to marketers? While history affects the sentiment between the departments, the procurement process with its many steps and careful execution are daunting to marketers, who rely on quick decision making to remain relevant. If procurement cannot present an abbreviated, yet comprehensive process, the battle between the departments will continue, and value will be minimal.

Relationships come first. Many departments are wary of procurement’s involvement in their activity, but none more than Marketing. Begin any potential sourcing exercise with understanding the needs associated with team. A stakeholder questionnaire or interview should be step in one in the process, and sourcing should remain largely out of the conversation. Through a candid conversation, the Procurement team can determine next steps and an effective timeline prior to presenting a capital-intensive RFP process that may require several months or more of activity.

Stakeholder alignment is second. After embedding yourself with the team, the nest step should be onboarding key decision makers. While the CPO and the CMO are logical choices, including the CFO provides additional value when working to align departments and budgets. Ensuring that KPIs match across departments allows for organizational success, and defining the methods of measurement enables tracking of the elusive metrics known as ROI.

Being tasked to do more with less is where procurement truly thrives, and it is in this challenge that having the alignment of C-suite decision makers becomes critical. For example, your organization wants to save 5%, while your agency wants to increase fees by 5%. In what could be a tenuous situation, procurement has the advantageous position of being unbiased, and can work to find a compromise that keeps service-levels the same with less of an impact on budget. Do you want an immediate 5% decrease, or would you like marketing to drive sales up 10%. Procurement can secure this situation, but recognizing that a tradeoff still exists is critical, and having C-suite buy-in from the outset eases and expedites the process.

Now that stakeholders are on-board, process development can begin. As discussed prior, the traditional procurement process struggles in marketing, because it is time intensive in an industry that relies on quick decisions and flexibility for success. Instead of quickly rushing toward an RFP, consider an Agency Relationship Management process, and identify the issues plaguing the relationship. Often, these issues are addressable and can be mediated, enabling both the business and the agency to continue normal operations. Simply changing teams, leads, or processes can lead to an immediate benefit.

If an RFP is unavoidable and the relationship has completely soured, consider a more-comprehensive RFI process. With so many agencies offering such a wide-variety of services, it is impossible to have complete knowledge of all opportunities, even with an exhaustive RFP. Utilizing the RFI as an opportunity to create a short-list should be of primary importance, and this should also be an opportunity for marketing stakeholders to identify fit and culture. If comfortable with the short list, a formal questionnaire may even be skipped, in favor of a comprehensive pitch agenda and assignment, which further reduces the total process timeline.


In summary, those engaging in marketing procurement should challenge their current process, and consider the importance marketers place on relationships and flexibility. As procurement continues to become embedded in the process of marketing, the importance of deviating from the proven procurement process becomes critical in continuing to drive procurement value and deliver on organizational success.  
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The Future of Procurement: How Nerds Will Reshape It

on Monday, February 1, 2016

How would you feel if a major retail store found out that your daughter was pregnant before you did? Thanks to modern technology, and a bit of simple math, Target has shown that this is entirely possible.

Algorithms now play a major role in the business landscape. Algorithms allow us to quickly and efficiently process, visualize, and predict outcomes from datasets.

An interactive dashboard built via an automated pipeline using MS SQL, Python, Linux cron jobs, and Qlik Sense.
The data table on the left depicts employee specific productivity and utilization during the past work week.
The KPIs and graph on the right represent historical productivity & utilization. 
Productivity and utilization are algorithms defined by Source One Management Service's executive team.
As a result, we are seeing a paradigm shift in the 21st century. Analytics has become main stream. You can’t even turn on ESPN without hearing reference to advanced analytics (WAR, WHIP, Win Shares, PER, EPA). Burtch Works has gone as far as to make a claim that if you are not at least data proficient, you are unlikely to be competent at filling a C-suite position in a large corporation. This requirement will only continue to grow as cutting edge research continues to become both useful and widely accessible. For instance, many of you will remember Deep Blue. The computer that defeated world champion Garry Kasparov in a game of chess. Six days ago Google one-upped Deep Blue with AlphaGo (beating Facebook and Microsoft to the punch). This artificial intelligence software attempts to replicate the human brain by continually “reprogramming itself” in an attempt to learn the optimal game strategy. Continued technological innovations like AlphaGo will not only change what we can do as a business, but they will also dramatically change how we do it.






Knowledge is power.”
Francis Bacon

COMPUTATIONAL JOURNALISM

The Associated Press released the following quarterly earnings report for apple on January 15th:

Apple tops Street 1Q forecasts Apple posts 1Q profit, results beat Wall Street forecasts AP. January 27, 2015 4:39 PM  CUPERTINO, Calif. (AP) _ Apple Inc. (AAPL) on Tuesday reported fiscal first-quarter net income of $18.02 billion. The Cupertino, California-based company said it had profit of $3.06 per share. The results surpassed Wall Street expectations. The average estimate of analysts surveyed by Zacks Investment Research was for earnings of $2.60 per share. The maker of iPhones, iPads and other products posted revenue of $74.6 billion in the period, also exceeding Street forecasts. Analysts expected $67.38 billion, according to Zacks. For the current quarter ending in March, Apple said it expects revenue in the range of $52 billion to $55 billion. Analysts surveyed by Zacks had expected revenue of $53.65 billion. Apple shares have declined 1 percent since the beginning of the year, while the Standard & Poor’s 500 index has declined slightly more than 1 percent. In the final minutes of trading on Tuesday, shares hit $109.14, an increase of 39 percent in the last 12 months.  _____  This story was generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research.  Access a Zacks stock report on AAPL athttp://www.zacks.com/ap/AAPL.

What is extraordinary about this article? It was generated entirely by an algorithm. It is easy enough to construct an automated process for acquiring data. Furthermore, once an algorithm is in place it will generally be cheaper, faster, and more accurate than a person performing the equivalent task. The same methods used in computational journalism will find their way into internal dashboards, papers constructed by consulting companies, and supplier relationship management (SRM) systems. Of course the most effective companies will retain a human element in the process (see Game Theory below).




“The stock market has predicted nine of the last five recessions.”
Paul Samuelson

RISK MITIGATION

Nerds took over Wall Street during the 1990s when physicists (rocket scientists) were displaced due to NASA funding cuts. Because of these nerds we have seen a major advance in computational knowledge and technology. Two areas where computational finance knowledge could have a very obvious impact in procurement are hedging futures and bidding on a contract tied to an index. That is, by adopting predictive analytics strategies from computational finance one can make more informed decisions about procurement.

A less well known area is that of real options valuation. A real option may be defined as "the right, but not the obligation, to undertake certain business activities such as deferring, abandoning, expanding, staging, or contracting a capital investment project." As this theory is further developed it too will have a direct impact on the procurement decisions.

Finally, as large businesses continue to expand they will need to improve their risk management process. It would not be surprising to see them begin to adopt some of the banking and insurance risk mitigation metrics (VaR, ETL, etc.). Businesses will also begin to expand their usage of data services to include ones like weather analytics services because economic implications often affect the forecasts that you see on television. Even from reputable services. For instance, in his article The Weatherman Is Not A Moron Nate Silver states, "for many years, the Weather Channel avoided forecasting an exact 50 percent chance of rain, which might seem wishy-washy to customers. Instead, it would round up to 60 or down to 40." See Nate Silver's book The Signal and the Noise for expanded coverage on this topic and data analytics as a whole.






Telling the truth and making someone cry is better than telling a lie and making someone smile.”
Paulo Coelho

FORENSIC ANALYSIS


Technology is a wonderful thing. Unfortunately, it has its drawbacks. First, no technology is full-proof. One must now concern themselves with data breaches, such as the ones that took down the Wichita procurement website and the Energy Department hacks. According to this article at MyPurchasingCenter.com, approximately 78% of organizations have experienced a data breach within the past two years. Moving forward, data breach litigation will be an integral part of procurement contracts. Assuming that one has good security practices in place, then their organization should focus on processing error and fraud within the data itself. Winston Chew of KPMG's forensic and litigation support team, "The proliferation of e-commerce has led to an increasing amount of e-fraud in recent times, which in turn has meant an increasing demand for forensic IT services aimed at identifying unauthorised or unethical activities."

A layer of forensic accounting needs to be incorporated into the spend analysis repertoire after vendor cleansing and before categorization. For instance, anyone well versed in data analysis should be familiar with Benford’s law which looks for the expected frequency of first-digits in random numbers. The theory has been proven to find fraud when people habitually enter non-random numbers (such as favorite or lucky numbers) and can be easily applied to fraudulent procurement, accounts payable, or travel & entertainment entries.
Benford's Law: We should expect spend entries to start with a 1 about 30% of the time,
a 2 about 18% of the time, a 3 about 13% of the time, and so on. 
Generally, when numbers
follow a more uniform distribution then they have been fabricated.


This is just one of many tests that provides a good indicator about whether one should delve deeper into their spend data. Another approach that could potentially be useful in the procurement industry is the Lanza Approach to Letter Analytics (LALA) because it affords an alternative perspective into the quality of the procurement specialist's work. For further reference on this material see Rich Lanza's The Lanza Approach to Letter Analytics to Quickly Identify Text Analytic Deviations and Improving Visualization of Text Analytics.


The Lanza Approach to Letter Analytics (LALA) may allow for analysis of purchasing professional's behavior by
depicting individual historical purchasing patterns as well as same-function comparative analysis.
Here it has been applied to Shakespeare's plays in order to identify and compare writing styles.
A third methodology that will be widely adopted is social network analysis. This technique may be used to detect corruption as in the case of the Slovak government a few years ago. The U.S. Department of Justice has issued more cases than ever on the Foreign Corrupt Practices Act which can impact any U.S. company with global operations working with foreign government procurement. Analytics can quickly ferret out preferred dealing so that they can be identified prior to becoming headline financial news. Lastly, geolocation analysis using access to tools like the Google maps API will be used to identify the legitimacy of accounts payable transactions.

We conclude by noting that specialists with subject matter expertise and technical knowledge will dominate the consulting landscape in the 21st century. They are the ones that will be best equipped to efficiently identify maverick spend, the reasons behind it, and whether it is the result of clerical error or fraud.

The only difference between fraud and error is intent.”
Rich Lanza

Furthermore, with the help of IT departments and data scientists, these specialists will be able to quickly prototype and implement the processes and technologies that best position an organization to succeed despite the problems caused by error rates, payment terms, and vendor management.

NOTE: I would be remiss not to mention that social network analysis and geolocation analysis will likely become ubiquitous in the procurement industry because they also have applications outside of fraud analysis. Social network analysis may also be used in supplier relationship management (SRM) to develop a better understanding of both suppliers and one's contacts at those suppliers. For instance, if you have a Facebook page then you may use the following WolframAlpha application to perform an analysis on yourself and your social network. Finally, as companies begin to near shore predictive policing will likely be adapted as a valuable tool in the decision making process.




Marketing without data is like driving with your eyes closed.”
Dan Zarrella

RELATIONSHIP MANAGEMENT

Procurement is not just about purchasing, but also about relationship management. Companies must both acquire customers (marketing) and retain them (relationship management). How does one ensure that they are reaching the appropriate demographic and pooling high quality suppliers when they utilize procurement tools such as reverse auctions?

First, they must ensure that they are communicating information to potential suppliers in an effective manner. It should be very clear what your company does, how they go about doing it, and what they want out of a relationship with any supplier. In time we will see sentiment analysis being used to by every company to gauge the market's perception of their message. For those of you that are not aware, sentiment analysis is the mining and extraction of text for emotions (sentiment). One example of sentiment analysis, specifically mining tweet sentiment, may be found here.

Once one determines where there may be gaps in their message, they must identify the cause of these gaps. For a company with a big online presence, one way to accomplish this is by using eye-tracking studies. Using the image below, Kissmetrics notes that by simply changing an image one is able to completely redirect the users attention. In doing so, this may dramatically affect the overall user experience and therefore corporate message.

An image from Kissmetrics blog post entitled 7 Marketing Lessons From Eye-Tracking Studies  
depicting how valuable embedded videos may be in Google search results.

Now, more than ever, it is important that your communications and marketing teams understand these concepts. This is because marketing is only going to get more complex. According to HPE Matter, facial recognition software has been developed to the point that it can now reasonably accurately identify human emotions. This means that not only will one have to determine who to communicate their message to, but they will also have to determine when to communicate that message. After constructing a clear message, one must then disseminate it as widely as possible via search engine optimization. Yet another algorithm that needs to be understood.

Once one has developed a large enough pool of suppliers they must now maintain them. Many existing data science techniques can, and should, be widely adopted for the purpose of evaluating with whom to communicate and how to do so. In particular, many unsupervised learning technqiues have been developed under the purview of churn analysis to help identify and classify suppliers with similar profiles and what the most effective message to each of these suppliers would be. All of these aforementioned techniques will become fully integrated and commonplace as we move through the 21st century.






A good decision is based on knowledge and not on numbers.”
Plato

DECISION SCIENCE (GAME THEORY)

Over the past decade there have been many changes in procurement. Thanks to the data boom I fully expect the procurement landscape to experience quite a bit of change over the next decade. To this point we have discussed many tools and techniques that I fully expect to be considered mandatory parts of the procurement process by the end of the next decade. Furthermore, it is highly likely that more complicated procurement options will develop in the 21st century as a means to obfuscate purchasing and tip the scales in one direction or the other. Consider for a moment that one of the big arguments for reverse auctions was that they supposedly add visibility to the procurement process. This is not necessarily true. Rather, they tip the scale in favor of the person with the most market knowledge because they give the impression of added visibility while not necessarily ensuring that one is going to the market at the best possible time or getting the best possible deal currently available (for instance, the best possible supplier may not currently be available due to resource limitations).

All of the preceding sections offer means with which one may acquire and disseminate useful information. A successful business is not one that has implemented the previous processes. Rather, a successful business is one that uses its resources to make good business decisions. As easily obtainable, inexpensive data becomes readily available managers will need to understand how to best evaluate the accuracy and and optimal utilization of said data. How does one go about making the best possible business decisions in a data obsessed world? By understanding game theory.



The purpose of this article was to introduce the reader to techniques used in other fields that I believe will become a standard part of the procurement process over the course of the next decade. In all honesty, I expect that most, if not all, of these techniques will become the norm within the next couple of years because all of the techniques discussed are currently used extensively in other fields such as investment, forensic accounting, and marketing. If you have comments, suggestions, or want to explore how Source One can help your company implement any of these strategies feel free to contact me at jpatounas@sourceoneinc.com




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Source One Round Up: January 29, 2016

on Friday, January 29, 2016

Source One Round Up: January 6, 2016

Here's a look at where Source One experts have been featured this week!





Blogs:

Choosing the Right Customer Loyalty Platform Provider
Did you know that acquiring a new customer is on average 5-10 times more expensive than retaining an existing customer? For most companies, the easiest source of revenue are your loyal customers, so it should come as no surprise that many organizations are turning to Customer Loyalty Programs in an effort to keep their loyal customers engaged. These programs provide a great opportunity for businesses to shape consumer behavior by offering incentives based on their shopping habits. There are an array of platform providers that offer different capabilities and services. The trick, however, is first understanding what your company's needs and goals are for the loyalty program you're looking to launch. This week, Source One's Senior Project Analyst and Marketing pundit, Liz Skipor breaks down the key considerations to assess when sourcing customer loyalty program platform providers. 

Data Breach Response Planning Part I
In today's data driven landscape, the news is constantly filled with stories of major data breaches. From retailers to financial institutions, it seems as though there is no industry immune. In the ideal world, data breach prevention would be all an organization needs to combat hackers. However, hackers are always finding new ways to get a hold of critical data, which is why it is critical for organizations to have a response plan ready to implement, should the worst case scenario occur. With an extensive background in helping top companies drive greater value from their IT and Telecommunications investments, 
Source One's Project Manager, Torey Guingrich sheds light on how procurement plays a critical role in sourcing all of the major partners a company needs when handling a data breach. 

Making the Case for a More Diverse Supply Chain Part II - Supplier Evaluation
Supplier Diversity Programs boast a number of benefits for organizations, and not just those geared towards minority and women owned businesses. Supplier Diversity also means having a supply based varying in geographical locations, social, environmental, and political status, and alternative capabilities. This week, Source One's Project Analyst Jennifer Engel elaborates further on the components of establishing a diverse supply base. In her follow up article, Jennifer walks readers through the supplier rationalization process. She explains what considerations to include when developing a duel-faceted RFP that includes evaluating suppliers based on their capabilities, but also their potential to build resiliency, stability, and adaptability in your supply chain. 

NEW PODCAST: Supply Management Recruiting Series Part 3 
Listen in to the third installment of Source One's Supply Management Recruiting Series. In this edition, our experts sit down with MRA Global Sourcing's Executive Search Consultant Nick Lazzara and Kaitlyn Krigbaum to dive in to the details of how the Procurement function is viewed within companies and how the affects the hiring process. 

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Using data analytics for a supply chain advantage

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Using data analytics for a supply chain advantage

A growing concern that many supply chain leaders have with implementing the Internet of Things into their operational systems and processes is that it could expose their companies to heightened levels of security risk. Such worry is understandable, considering security breaches are one of the major disruptions that threaten supply chains. However, there are many ways that supply chain data and analytics can be used to improve performance, increase visibility and transparency and, ultimately, enhance the overall success of an organization.

Data science of supply chains
A recently published white paper, commissioned by DHL, examined the role of data science in supply chains and predictive enterprise. This paper, written by Iharrington group LLC President Lisa Harrington, indicated that businesses are sitting on a gold mine of data that they are not using to their advantage and that it can be harnessed to gain an edge over competitors.

In the report, Harrington said that there has been more data created within the past couple of years than ever before. Harrington added that companies can greatly benefit by collecting data from their supply chains because this is where so much information stems from and is the area of business that has the greatest influence over the other ones.

And, while this is true for the majority of organizations, not enough corporations are effectively using this essential data to their advantage. Tools such as data mining, analytics and pattern recognition are certainly not new to the business environment. However, how this information can be utilized exactly is something many enterprises are still trying to figure out.

Harrington reported that a survey conducted by Accenture revealed almost all, or 97 percent, of business executives feel they know how the use of data analytics can be beneficial to supply chains, yet only 17 have actually integrated analytics into a function of their supply chains.

So, in what ways can data and analytics be used to improve supply chains?

Benefits of analytic tools
One area analytics can help with is supplier relationships. According to Shelly Dutton, a contributor to Business 2 Community, "this information can improve decision-making on supplier selection, contracting and monitoring. With the emergence of advanced data collection and analytical tools, companies can expand their scope of research across a broader population of transactions rather than data samples."

In addition, the source added, data and analytics tools can be used to gain a deeper look into supply chain operations by auditing labor practices, ensuring they are meeting safety and compliance standards and are maintaining a business that is socially and environmentally responsible. These systems can also be leveraged to reduce the risk of fraud in supply chain networks and minimize the chance of disruptions.

To effectively utilize business intelligence and data analytics to improve supply chain operations, many industry experts recommend partnering with people in the market who can offer a comprehensive understanding of such information to provide businesses with the needed guidance.

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Year in Review: The Advertising Agency Landscape-Rise of Independents (Part 3)

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          Reflecting on the advertising agency landscape in 2015, we saw a number of key mergers and acquisitions and trends that shaped the landscape as we enter 2016. In the last post of this series, we highlighted some of the M&A activities with the large advertising holding companies, including WPP’s GroupM, Havas, Publicis Groupe, and Interpublic Group. Staying abreast of these activities in the advertising landscape is crucial for marketers, and marketing sourcing professionals, since these mergers and acquisitions may have a trickle- down effect on the agency you are currently working with.
The large holding companies are frequently adding to and changing their agency networks to remain competitive in the ever-growing advertising agency landscape. However, M&A activity isn’t limited to these holding companies. In fact, this past year there was a rise in activities with independent advertising agencies, and as a result these independent advertising agencies are thriving.
                But why are companies choosing to partner with independent agencies? Especially when a larger agency may have more name recognition and experience than an independent firm?
First, companies are becoming increasingly interested in transparency with their advertising partners. They want to know where their money is going and be able to calculate a clear return on investment for their marketing budget. Also, many organizations are not interested in being viewed as another client added to an agency’s roster. With an independent agency, the client is able to get to know and build a strong relationship with the staff working on their account and be a focal point of the agency’s efforts. These companies are also using technology to their advantage, creating ads that can reach hundreds of countries and eliminating the need for offices around the world.
Although there have always been independent advertising agencies, in the past these companies have had a difficult time competing against the larger holding companies. However, in 2015 we saw independent agencies on the rise. Here are some independent agencies to get to know.
Horizon Media, the largest standalone media agency in the U.S., with $4.5 billion in ad spend across 100 clients, gained additional recognition in 2015. The company continuously strives to deliver on its mission, “to create the most meaningful brand connections within the lives of people everywhere.” Horizon Media works with clients such as Geico, the History Channel, Corona, and they recently agreed to become an equal partner in a newly created media joint venture, Canvas Worldwide, which will take control of the nearly $700 million U.S. media business for Hyundai and Kia beginning this year. This past year, the company received two Adweek project Isaac Awards, an award that celebrates invention in media, advertising, and marketing and technology. Nominations were accepted across 35 categories and divided into four brackets: Advertising & Marketing, Media, Digital, and Best Practices. Horizon Media competed against companies such as Mindshare, 72andSunny, Leo Burnett Argentina, and J. Walter Thompson. Horizon took two awards for their partnership with iHeartMedia on a radio campaign and an internal invention-development program. Keeping the Horizon mission in mind, enabled these inventions to reach fruition, increasing the growth of this independent agency.         
Similar to Horizon, two other independent advertising agencies, Merkle and Cummins & Partners, also expanded in 2015.  Merkle, the largest independent agency in the U.S. for CRM, digital, and search, announced in 2015 that they have set aside $1 billion for acquisitions over the next 5 years. Merkle is looking to fill the gaps in their service offering by purchasing companies that enable emerging digital efforts like native advertising and video in order to compete against the larger holding companies. Merkle has clients spanning numerous industries such as insurance, retail & consumer goods, travel, and media and due to the number of acquisitions in the near future, will be a company to watch in 2016.
Along the same lines, Cummins & Partners, an independent agency founded in Australia, also gained popularity in 2015. Realizing it wasn’t just the business that mattered, it was the quality of people, Cummins & Partners chose to acquire New York based creative agency, dc3. With companies becoming more focused on the individuals working on their advertising accounts, Cummins & Partners wanted to make sure they had an all-star employee roster. Todd Irwin, founder of dc3 produced work for brands such as Verizon, Nikon, and Coca-Cola, and this type of experience will likely persuade clients to choose Cummins & Partners, therefore enabling the independent agency to scale their brand.
                What is the endgame for independent agencies such as Horizon, Merkle, and Cummins & Partners? For some agencies they may want to continue to grow and then sell to a conglomerate, such as WPP or Publicis; however, others, and what I expect to be the majority of independent agencies, will remain fiercely committed to their independence in 2016. These agencies will continue to enjoy the freedoms they have as an independent, such as a unique culture and the ability to choose the best talent and work with the best clients. I expect that in 2016 we continue to see more rising independent advertising agencies and an increase in the number of clients choosing to partner with these agencies.


For more insight into 2015 trends and outlooks for 2016, be on the lookout upcoming blogs in this series.

References
"Horizon Media." Horizon Media. Adbrands, 20 Aug. 2015. Web. 19 Jan. 2016.
"Horizon Media Wins Two Adweek Project Isaac Awards, Recognizing Invention." Horizon Media. PR Newswire, 22 Sept. 2015. Web. 19 Jan. 2016.
Kayne, Kate. "Merkle Will Spend $1 Billion on Acquisitions in Next Five Years." Advertising Age DataDriven Marketing RSS. AdvertisingAge, 16 Apr. 2015. Web. 18 Jan. 2016.
Stilson, Janet. "Can Indie Ad Agencies Thrive in the Merger Era?" AdWeek. AdWeek, 20 May 2014. Web. 19 Jan. 2016.
Wander, Erik. "How This Independent Agency Is Starting Its Aggressive Global Expansion Plan." AdWeek. AdWeek, 12 Nov. 2015. Web. 18 Jan. 2016. 
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