Confessions of an Analyst – 90% of supplier management technology is below the surface (Part 2)
As a continuation of the last blog posting last week in Part 1, what lies beneath the surface with regard to supplier management technology is sometimes a daunting, but a necessary task. Perhaps a good analogy here is that of an iceberg…
For those of us that have read about the Titanic or have seen the movie, it is evident that only a small amount of an iceberg is above water. In fact, science reveals that based on the differences in density between seawater and ice, approximately 90% of an iceberg is actually underwater. The Lesson: To get a holistic view of things often requires a look at what lies beneath.
My point here is that unless the configuration and customization tools can easily be demonstrated, and a clear explanation of the data governance model can be described by the supplier management software provider, even analysts will not be able to accurately assess the true technical capability of a supplier management platform.
Going beyond the evaluation of feature functions, reporting and dashboards, a good analysis of supplier management technology must provide an assessment of how well it can handle that 90% below the surface. From my client experience at HICX Solutions, I’ve seen that being able to demonstrate the following is a must: organizational modeling, master data and workflow. Let’s take a look at each –
Organizational Modeling
Organizational units model the specific functions and locations within an organization. They are also made of up people who cooperate to accomplish specified supplier objectives that may or may not be applicable to other parts of the organization. As such, it’s clear that modern organizations are very complex by their nature often spanning several time zones and legal affiliations.
Modern organizations thus require flexibility for how they align supplier relationships based on a number of factors. Consider three dynamics of complex global organizations today –
- The Hierarchical Dynamic – these include the different structures from the global level down to a specific business unit function. (E.g. Procurement -> Strategic Sourcing or Finance -> Accounts Payable)
- The Geographical Dynamic – this includes the geography from a particular region or country down to a specific site. (E.g. Asia -> China -> Hong Kong)
- The Legal Dynamic – this relates to the underlying legal, accounting and compliance requirements under which an organizational entity must be managed. (E.g. US Entity -> GAAP or US Compliance -> FATCA, FCPA)
Without the ability to model these organizational dynamics, supplier relationships can get lost. In fact, a basis for the challenge of effectively managing suppliers falls squarely on the frequency of change in business today, and is evident is some of the most recognized global firms. Examples of huge corporate changes here in our Chicago office include mergers – (e.g. United and Continental) or divestitures (e.g. Motorola Mobility and Motorola Solutions).
Research shows that those involved in supplier management like procurement and supply chain tend to get pulled into these processes late, and often need to play catch up on the effects/impacts of the organizational change. As a result, specific supplier requirements based on local needs may get trumped once the restructuring is complete; and it is only after the merger or divesture that those in involved with supplier management can work with IT to identify ways for accommodating a new or modified process. And in some cases like with a divestiture, it’s not unheard of that IT had to be shared with a new separate entity until things are properly flushed out.
What does this mean for managing suppliers and maintaining information? How can you model these organizational changes if they can’t be edited quickly or effectively?
To mitigate these challenges, supplier management solutions need to model the unique organizational objectives at the lowest common denominator. This includes compliance initiatives, approvals, alerts or even data integrations that must occur for a particular organizational unit, but not for others. In fact, from a HICX perspective I can even note two recent deals hinged on the ability to handle suppliers differently from property location through to the end customer.
So going back to the critique of the Harvey Balls and analyst reports in general, what can they truly tell you about these fundamental elements for managing an organizational structure as it relates to suppliers? For instance, if you are evaluating a supplier management solution by looking at an analyst report, ask yourself based on this report, do you know enough about the solution that you can –
- Easily identify organizational hierarchies for modeling supplier relationships based on geography, business function and legal entity?
- Model supplier relationships to the lowest granular level of the organization?
- Establish a roll-up hierarchy for supplier reporting, workflows or program definitions that are based on a complex organizational structure?
- Quickly modify or adjust hierarchies based on corporate events like merger or divestitures?
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In Part 3, we will look at two other core fundamentals – Master data and Workflow
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