The UX One Should Expect from Best-in-Class Spend Analysis … Part III

In previous posts, we took a deep dive into e-Sourcing (Part I and Part II), e-Auctions (Part I and Part II), and Optimization (Part I, Part II, Part III, and Part IV). But in this series we are diving into spend analysis. And this time we’re taking the vertical torpedo to the bottom of the deep. If you thought our last series was insightful, wait until you finish plowing through this one. By the end of it, there will be more than a handful of vendors shaking in their boots when they realize just how far they have to go if they want to deliver on all those promises of next generation opportunity identification they’ve been selling you on for years! But we digress …

We’ve said it multiple times, but we are going to repeat it again. The key point to remember here is that there are only two advanced sourcing technologies that can identify value (savings, additional revenue opportunity, overhead cost reductions, etc.) in excess of 10% year-over-year-over-year. One of these is optimization (provided it’s done right, useable, and capable of supporting — and solving — the right models; see our last series). The other is spend analytics. True spend analytics that goes well beyond the standard Top N and report templates to allow a user to cube, slice, dice, and re-cube quickly and efficiently in meaningful ways and then visualize that data in a manner that allows the potential opportunities, or lack thereof, to be almost instantly identified.

But, as per our last two posts, this requires truly extreme usability. Since not everyone has an advanced computer science or quantitative analysis degree, not everyone can use the first generation tools. This limits these users to the built-in Top N reports. And as we have indicated many times, once all of the categories in the Top N have been sourced and all of the Top N suppliers have been put under contract, there is no more value to be found from a fixed set of Top N reports. At this point, the first generation tools would sit on the shelf, unused. And that’s not how value is found.

However, creating the right UX is not easy. It’s not just a set of fancy reports (as static reports have been proven to be useless for over a decade), but a powerful set of capabilities that allow users to cube, slice, dice, and re-cube seven ways from Sunday quickly, easily, and repeatedly until they find the hidden value. It’s innovative new reporting and display techniques that makes outlier identification and opportunity analysis quicker and easier and simpler than its ever bin. It’s real-time data validation and verification tools that insure that a user doesn’t spend a week building a business case around data where one of the import files was shifted by a factor of 100 because of missing decimal points, destroying the entire business case in 4 clicks. And so on. And that’s why the doctor and the prophet are bringing you a very in-depth look at what makes a good User eXperience for spend analysis that goes far, far deeper than anyone has done before.

In a time where there seems to be a near universal playbook for spend analysis solution providers when it comes to positioning the capability they deliver and when many vendors sound interchangeable, and when many vendors are fungible in a way that is not necessarily negative, this insight is needed more than ever. And if a few dozen vendors quake in their books when this series is over, so be it.

In the first part of our series, we explored a few key capabilities that must be present from the get go, including, as we dove into here on SI in our first post on The UX One Should Expect from Best-in-Class Spend Analysis … Part I, dynamic dashboards. Unlike the first generation dashboards that were dangerous, dysfunctional, and sometimes even deadly to the business, true next generation dynamic dashboards are actually useful and even beneficial. Their ability to provide quick entry points through integrated drill down to key, potentially problematic, data sets can make sharing and exploring data faster, and the customization capabilities that allow buyers to continually eliminate those green lights that lull one into a false sense of security is one of the keys to true analytics success. (For more details, see the doctor and the prophet‘s first deep dive on What To Expect from Best-in-Class Spend Analysis Technology and User Design (Part I) over on Spend Matters Pro [membership required]).

In the second part of our series we explored a few more key capabilities, four to be precise, that include dynamic cube and view creation “on the fly”. Given that:

 

  • A cube will never have all available (current and future) data dimensions
  • Not all data dimensions are important;
  • Some of the essential data (referenced in the previous point) will be third-party data updated at different time intervals
  • A user never needs to analyze all data at once when doing a detailed analysis.
  • We have not (yet) encountered a system that will have enough memory to fit enough of a true “mega cube” in memory for real-time analysis.

 

One cube will NEVER be enough. NEVER, NEVER, NEVER! That’s why procurement users need the ability to create as many cubes as necessary, on the fly, in real time. This is required to test any and every hypothesis until the user gets to the one that yields the value generation gold mine. Unless every hypothesis can be tested, it is likely that the best opportunity will never be identified. If we knew where the biggest opportunity was, we’d source it. But the best opportunities are, by definition, hidden, and we don’t know where. Success requires cubes, cubes, and more cubes with views, views, and more views. (For more detail, or information on the other capabilities we didn’t cover in our post on The UX One Should Expect from Best-in-Class Spend Analysis … Part II, see the doctor and the prophet‘s second deep dive on What To Expect from Best-in-Class Spend Analysis Technology and User Design (Part II) over on Spend Matters Pro [membership required].)

But much, much more is required. That’s why the doctor and the prophet recently published their third deep dive on What To Expect from Best-in-Class Spend Analysis Technology and User Design over on Spend Matters Pro [membership required] on the breadth of requirements for a good Spend Analysis User Experience. In this piece, we dive deep into three more absolute requirements (which, like the previous requirements, are so critical the absence of any should delete a vendor from your list) including real-time idiot-proof data categorization.

Just about every solution has categorization, most allow end users to at least over-ride categorization, but, in our view few, relatively few solutions can claim (to approach) idiot-proofness.

So what is an idiot proof solution? Before we define this, let us note that the approach a provider takes to classification is secondary. It doesn’t matter whether the methodology provided is fully automated (and based on leading machine learning techniques), hybrid (where the machine learning can be overridden by the analyst with simple rules), or fully manual (where the user can classify data using free-form rules created in any order they want on any fields they want).

This means that the system must provide a simple and effective methodology for classifying, and re-classifying, data in an almost idiot-proof manner. So, if the engine uses AI, it should be easy for the user to view, and alter, the domain knowledge models used by the algorithms. If it uses rules-based approaches, it should be easy to review, visualize, and modify rules using a language and visual techniques wherever possible. And if the solution uses a hybrid approach, the user should be able to quickly analyze the AI, determine the reason for a mis-map, and then define appropriate over-ride rules that will correct any errors the user discovers so the error never materializes again in the future.

In other words, success requires cubes, cubes and more cubes on correctly mapped and classified data that can be accessed through views, views, and more views. With any data the user requires, from any location, in any format. But more on this in upcoming posts. In the interim, for additional insight on a few more key requirements of a spend analytics product for a good user experience, check out the doctor and the prophet‘s second deep dive on What To Expect from Best-in-Class Spend Analysis Technology and User Design (Part III) over on Spend Matters Pro [membership required].) As per the past two parts of the series, it’s worth the read. And stay tuned for the next two parts of the series. That’s right! Two more parts. We told you this one was a doozy!

The Advanced Supply Management Phoenix Takes Flight

As indicated in our last post, Procurement needs to evolve, fast, or join the elephants in the elephants’ graveyard. But, as we also indicated, just making the natural progressing to an advanced strategic sourcing function that is based on an advanced (optimization-backed) sourcing solution is just the beginning. While this will likely extend your longevity by (at least) a decade, it’s not enough to grant you a permanent stay of execution.

The next step, as hinted at, is advanced spend analytics that can find value opportunities across categories through category re-organization, raw material identification and sourcing on behalf of a supplier, multi-level service and MRO category identification (for advanced sourcing), hidden trend identification, demand shift opportunity for category and SKU rationalization, and other value capture opportunities that out-of-the-box reports and even GPOs and consultants miss.

But don’t stop there … eventually those opportunities will be found and more and more opportunity detection algorithms will be encoded in standard analytics suites to the point where the majority of these opportunities will be detected by advanced, machine learning, cognitive analytics suites.

Move on to Supply Base Design. Don’t just source each category on its own, source each category in the context of an optimized supply base that will allow for SKU rationalization, logistics cost reduction, supplier development across a greater portion of the rationalized supply base, access to government benefits from a concentration of business activity in a region, and so on.

And do this in conjunction with design for reduce, reuse, recycle, and recovery (4Rs) so that there is no waste, especially where the corporation is responsible for taking the product, or something it contains, back under appropriate governmental regulations. And even if there are no governmental regulations, if there are valuable components that can be reused, recycled, or sold for other uses, helping the organization reclaim dollars that used to seep out the door is valuable. Plus, it shows that you can help with product design and redesign and bring value that consumer-oriented design will miss.

But don’t stop there … help your suppliers with their own supply base design and design for 4Rs to push value creation further down into the supply chain. At some point, the only value will come from enabling your suppliers to cut costs and innovate in value-generating ways that they previously could not.

And then you will survive regardless of what future exists.

If the mega-corporate world materializes, your ability to push down into the value chain will give you an edge that makes it worth keeping you around. Even if there are only three big guys for each product, going down a level there are nine big guys contributing to your product, and down another level there are twenty-seven … not only does each level of the supply chain have to be appropriately filled, but any improvement at any point of the chain will bring value.

If the project economy materializes, your ability to identify an appropriate supply base that can work with you to design for the 4Rs and minimize SKUs while maximizing stakeholder value will make you the most valuable project management candidate out there.

And if we return to the barter economy, your ability to work with suppliers to design what is needed, in the most efficient way possible, and help them identify how your products will be more valuable than your competition’s. This will be much more attractive to a potential supplier than some sales guy pushing a lower priced product that the supplier doesn’t really want.

In other word’s, if Procurement can transform to a true advanced Sourcing organization, it can survive. Otherwise, I’m sure the elephants are making room as you read this.

Forty Five Years Ago Today

The United States of America, under the leadership of Richard Nixon, launched Landsat-1, the first satellite of what began the US’ Landsat program – the longest running program for the acquisition of satellite imagery of Earth. (We are now up to Landsat 8, launched four years ago on February 11, 2013.)

As succinctly summarized by Wikipedia, the images collected and archived at receiving stations around the world are a unique resource for global change research and applications in agriculture, cartography, geology, forestry, regional planning, surveillance and education, and can be viewed through the U.S. Geological Survey (USGS) ‘EarthExplorer‘ website. For example, the latest, Landsat 7, records data across eight spectral bands with resolutions ranging from 15 to 60 meters and a temporal resolution of 16 days.

And while Landsat 1 only had two sensors, the return beam vidicon (RBV) and a first generation multispectral scanner (MSS) that recorded, respectively, visible and near infrared photographic images and radiometric images, this was still extremely valuable imaging data where none had existed before. And without it, we’d never have Google Earth.

The Advanced Supply Management Phoenix …

… that rises from the ashes and replaces the modern Procurement organization that has one foot in the grave and one in the fire. But this is not just the advanced sourcing that SI has been preaching this year, not just enhanced category management, not even just enhanced supplier relationship management or supply base management. This is really the creation and implementation of design by sourcing. Not design for sourcing, which some extremely advanced organizations are attempting (which is akin to design for recycle, which is part of design for sourcing), but truly a significant evolution of the entire function — as the only other option is, as far as the doctor can tell, to accept that it’s in its final days and will soon die out of existence regardless of what future, described in our previous two posts, comes to pass.

The reality is that the word is changing and no one needs someone who’s only job is to find a source for a product or service. Thanks to the internet, anyone can do that … and have it delivered as early as the next day if needed as these sources generally integrate with multiple global logistics carriers which have extremely quick, air-ship, options for anything from small packages to entire cargo holds. Even if the worst case happens and we get with a mega solar storm produces a solar flare 5X as powerful as the Carrington Event and takes down every power grid on earth, and the internet with it, for weeks to months, it will still be possible to find sources of supply as, guess what, you’ll be going local … back to all the factories you used to know. And you’ll be paying local currency or, more likely bartering, and it will be sales guy vs. sales guy negotiating, because that’s what they do.

So Procurement needs to evolve, fast, or join the elephants in the elephants’ graveyard. Because, let’s face, it, without evolution, that’s the only place Procurement will soon be welcome. (It won’t even be welcome in the local cemetery. With real estate becoming scarce for every use, cemeteries will soon be reserved for the honoured dead. Procurement will not even be among the honoured dead.)

But it has to go beyond the natural evolution to an Advanced Strategic Sourcing function. While this will get it over the hump and extend it’s longevity by (at least) a decade, as it will be finding value that its peers will not (for all of the reasons covered in the many posts on advanced sourcing this year, and more, on why you need to adopt an advanced sourcing solution) and have the support of the CFO as long as the value increases (and superficial savings keep hitting the bottom line), it won’t be enough. At some point, there will be template models for all the categories, including the simple tail spend categories (that will have simple models for optimization-backed options) and anyone will be able to start with those models to source their own products and services, or just turn it over to a cognitive procurement solution that will do the sourcing on its own.

So where does it need to go? Stay tuned for our next post in the series.

The Procurement Wasteland …

… is well on its way, as we discussed in our last post. Buying is not difficult anymore. Thanks to the internet, anyone can find a dozen potential suppliers. Free RFX and Auction technology, alongside good old fashioned e-mail, allows anyone to solicit bids, do simple comparisons, and make a buy that’s not the worst buy one can make. Heck, three bids and a buy is still better than what a lot of buyers do. And with Amazon Business and about 200 different major suppliers online with punch-out, anyone who needs anything that’s not custom manufactured can just go out and get it.

It’s a Procurement wasteland because not only are (tactical) buyers unnecessary, but, as indicated in our last post, it’s easy to replace those (tactical) buyers with cognitive systems that, armed with a few rules and a bit of machine learning, can do just as good of a job as the buyers and, with huge databases of potential suppliers at their disposal, outdo the organizational representative who’d just punch-out to her preferred site and buy the first product she found. No need for buyers, and the work they do is replaced by systems.

The big question is, is this procurement wasteland going to exist in:

  • A Mega-Corporate World,
  • A Project Economy, or
  • A Barter Economy

Mega-Corporate World

While this option wasn’t (explicitly) mentioned in the KPMG report, it is one situation where Procurement could gain primacy if, and only if, it could prove more relevant than the machines. So what is the mega-corporate world? It is a world where the M&A Frenzy continues like crazy across all sectors, where the big get bigger and only a few companies dominate in each category, and you have a select few buying from a select few for the majority, but making sure that those that are bought from properly orchestrate further down the chain because even though mega-cos might own most of the little mom-and-pop shops that supply the raw materials, orchestration is still key to cost control, and these little mom-and-pop shops will be bought and sold like shares in the stock market as balance sheet adjustments appear necessary. And since there are only a few real suppliers, you just carrot-and-stick negotiate between the sales folk, as the corporate landscape is now so small they need what you produce too, until you get the deal you want and you’re done.

Project Economy

As more and more professionals go freelance, and more and more companies try to trim the fixed overhead on the balance sheet by outsourcing more and more to freelancers (who don’t come burdened with health care, retirement contributions, and other benefit costs), we switch to a project economy where mega-corporates still exist on paper, but the organization is primarily a balance sheet that orchestrates projects which are led by freelancers in a project economy. In this economy, the project manager is the purchaser, and she buys how she sees fit.

Barter Economy

A solar megastorm produces a solar flare 5X as powerful as the Carrington Event and takes down every power grid on earth, and the internet with it. All forms of instantly electronic currencies cease to exist, and global communication, and trade, status reverts to what it was in the early 1900s. After the initial panic, riots, and lootings, the power grid is restored in major cities and the global internet restored a few weeks later, but faith in any form of electronic currency crumbles. Especially since the global chaos makes foreign currency worthless for a short period of time and faith doesn’t come back.

In this situation, goods and raw materials are of the utmost value and trade is the name of the game. Failing that, payment in the local currency only is accepted. And unless a buyer can negotiate the trade of goods only, there is no need for a Procurement practitioner.

At the end of the day, there is no need for Procurement. it’s not only dead, it’s cremated. Only ashes remain. The only hope is …