Monthly Archives: September 2005

The Catalog is Not The Be All and End-All …

Originally posted on the Synertrade blog in November, 2018.

… it’s only the foundation that you need for great across-the-board cost control.

But let’s back up a bit so you know where we’re coming from. As we have already discussed, the past couple of years have seen a flurry of M&A activity, with a lot of “best-of-breed” catalog vendors getting scooped up, and one big firm in particular buying two, that’s right, two “best-of-breed” catalog vendors (when such firm already had an in-house catalog management solution). This is, of course, a bit whacky because

  1. it’s not how many external catalogs are built-in out of the box (but how many you need),
  2. how smart the guided buying is (as most “guided buying” can be accomplished by a few simple rules and it’s simply about ensuring the right product is bought), or
  3. how Web X.0 the UX is (it has to be usable, not confusingly beautiful).

Remember the key points we made in our last post on why you should update that catalog (not that catalog platform, as it might be more than adequate for your organizational needs):

  1. it captures negotiated savings by making sure negotiated deals are captured for easy requisition by buyers;
  2. it makes it easy for buyers to see what is contracted, what is preferred, and, most importantly, what is neither;
  3. it captures more organizational spending and this is why
  4. it enables more cost control.

Let’s focus on this last point. Enables. Good sourcing and procurement requires good insight into organizational spending. When spend is just put on a P-Card, or even worse, a T&E report, an organization generally doesn’t have good insight into precisely what it was for or what other products or services there are that are, or could be, under contract that could have been selected (or why those contracted products and services were not contracted).

Remember, a prime candidate category for sourcing is one that has a great savings potential when current spend is compared to expected spend against market average and depends on two factors: volume and price differential by unit. And if you do not have true insight into category volume or the precise products (and the price differential from current market pricing of preferred products), you will never know what categories with great potential exist that you are missing.

It’s not always the 10M+ or 100M+ categories that hide the biggest savings. Chances are you are aggressively sourcing the 100M+ categories every year and the best you can do in any given year when prices are static or rising is 2% with good sourcing optimization and better inventory and cash management. That’s maybe 2M in savings. For a 10M category, that is often put through a less rigorous sourcing process, you’re still probably coming within 3% to 4% of absolute optimal, let’s say 300 K of savings might exist. That’s not a lot.

However, it’s often the case that there are a handful of 1M to 5M categories being ignored because half of the spend (or more) is unmanaged catalog, P-Card, and, even worse, personal credit card spend (which only appears on T&E reports). Let’s say there are five of these categories not under contract which total 10M. Chances are, the average over-spend here is 10% to 30%, depending on the category. Or, on average, 1.5M on categories that could be quickly, and near-optimally, sourced with 3-bids-and-a-buy within 3% of optimal. In other words, the insights a good catalog solution provides through increased spend capture could enable another 1.2M on just a handful of categories.

And this is why catalogs are not the be all and end all. They are the enabler. The true value of a catalog-enabled solution is an end-to-end platform that supports not only strategic sourcing and day-to-day Procurement but tail-spend management around the catalog. This is where the greatest overages, percentage-wise, often are and there is no single strategy for tail-spend management. Some of it has to be spot-buys off a catalog. Some of it has to be 3-bids-and-a-buy quick-hitter single-round RFX. Some of it has to be promoted to strategic categories, existing or new. Some of it has to be auctioned on a regular basis to the lowest bidder. And for some of it, the strategy will change on market events. And if all the platform supports is catalog buys, great opportunities are being missed.

And that’s why you need more than just a great, updated, catalog — you need an integrated end-to-end platform around that updated catalog with good tail spend management to capture the next-level of savings.

The Back Office. It Will Power Platform Evolution As Well.

Originally posted on the Synertrade blog in October, 2018.

A few months ago we penned a piece on the back office and how it powers platforms. We indicated that the only way a platform could deal with the facts that

  1. (Procurement) workflows are not static and change over time, whether or not you want them to or not;
  2. the type of data you need to ingest, as well as the quality and representation thereof changes over time; and this means that
  3. RPA requirements also change over time

is if such a platform had a great back office. A back office with functionality that allows you to do more than just define users, look and feel, and the categorization schema. A back office that allows an administrator to update the master schema, data harmonization rules, organizational hierarchy, workflow processes, approval chains, and RPA workers. And so on.

But this is just platform maintenance. A platform needs to evolve over time. As per Sourcing Innovation’s recent series on 2020 is Fast Approaching — Better Get on Your Tech Capabilities (Part I, Part II, Part III, and Part IV), 2020 is almost here and the magnificent picture of Procurement in 2020 that all the big analyst firms and thought leadership vendors painted between 2008 and 2013 (check the modern Wayback Machine if you don’t remember, unless you have the original WABAC machine) has not materialized. To be blunt, the picture today, for the most part, is not much better than it was ten (10) years ago. There have been few advances in platform capabilities, although there has been considerable advances in usability and integration. Source to Pay offerings, non-existent in the best-of-breed focussed world (where there were a couple of S2C and a couple of P2P offerings) of a decade ago, are now the norm. And they are quite useable. But are they more powerful?

Consider the eight capabilities mentioned in Sourcing Innovation’s recent posts which were supposed to be, more-or-less, common place. How many does your platform have? Maybe a couple if you are lucky. Maybe. But let’s review the capabilities you should have.

  • True Invoice Automation (with human intervention necessary on less than 2%)
  • Supplier Identification
  • Automated Supplier Discovery
  • RFX Process Automation
  • Should Cost Modelling

If your platform doesn’t have these capabilities, or doesn’t have them to the extent it should (and we can guarantee no platform yet has all of these capabilities to the extent it should, the best you can hope for is a platform actively working towards the goal), the only way you’re going to get them is if the platform has built-in foundations for evolutionary capabilities.

What are these necessary capabilities?

As previously discussed, workflow automation, schema extensibility, and RPA (robotic process automation) are key. But so are open integration (and a fully exposed and extensible API), unlimited supplier (pool) access, and extensible cost and product modelling. These are key capabilities that many platforms are missing, and, key capabilities that, when present, are found in a back-office that powers the platform. (And that’s why the back office will power platform evolution too.)

Most platforms, even those that tout integration, don’t have truly open integration. There is a limited API, and if the external platform or data feed can’t map to it one-to-one, there is no true integration — only what can be mapped.

Most platforms have their own S-MDM (Supplier Master Data Management) capability and some either offer their own network or integrate with one. But it’s still very closed. Right now there are a number of networks, a number of directories, and a number of collective initiatives out there, each of which is controlled by a vendor using a different (often proprietary) technology. There’s no real openness. A vendor must commit to not building its own network of any kind, but integrating with whatever network its suppliers are on that they want to use.

Only a few platforms have should-cost modelling and bill of materials capability even today — even though, at some point in the supply chain, every product is a bill of materials and every service is a collection of task-based service offerings. Only a platform that allows these common components to be defined and re-used is going to provide an organization with evolutionary offerings.

So when you go out to select your S2P platform, if you want a best-of-breed platform that will not only offer the best of what’s available today, but meet your needs tomorrow, be sure to select one with a back-office capability that, in addition to the key requirements outlined last time, also allows for true open integration, for true supplier network/portal interoperability, and true, composable, bill-of-material based should-cost modelling capability. Otherwise, there will be limits to what the platform can do and you will never get a true strategic offering from the vendor and never, ever, reach cognitive support capabilities.

Update that Catalog! It’s Still the Best Cost Control Tool You Have.

Originally posted on the Synertrade blog in June, 2018.

Those of you that know me, and my constant pursuit to get your organization to implement modern analytics and optimization-backed sourcing platforms, probably either have a look of confusion on your face thinking you read the title wrong or a look of dumbfounded shock on your face right now thinking the doctor has finally gone cuckoo from talking to deaf ears.

So I’ll pause for a bit while you re-read those words just so you can be sure you read them right.

…

…

…

Now that you’ve satisfied yourself that you’ve read the words right, I’m going to say it again. Update that Catalog! It’s still the best cost control tool you have.

There’s Cost Savings, Cost Avoidance, and Cost Control. Catalogs do squat for cost savings and have minimal impact on cost avoidance, and, moreover, only achieve cost avoidance if there are proper approval mechanisms in place (to insure only valid purchases are made) and deterrents to avoiding the catalogs (to prevent maverick spend). But when it comes to cost control, catalogs can do wonders.

Why? First of all, a catalog is often the best tool for ensuring that negotiated savings get captured. It’s a well known statistic that, in an average Procurement organization, 30 cents to 40 cents of negotiated savings never materialize. There are a slew of reasons for this, including intentional maverick spend, but common reasons include lack of knowledge of what products and services are covered by a contract and lack of ease in identifying the right product or service.

A good organizational catalog, which captures all contracted (and preferred) products and services both makes it easy for an organizational buyer to identify both what is on the contract and to buy it. A user can do a simple search and the smart catalog brings the user right to the product and allows the user to requisition it with a single click if approval is required and buy it with that single click if they have purchase authority.

Secondly, a catalog is one of the best tools that an organization has in their arsenal to ensure that there is a central portal to capture all organizational spending, even if there isn’t a contracted product or solution in place that meets the user’s needs. A modern catalog allows a buyer to not only buy on-contract products and services, but punch-out to third party sites for other products and services using a mechanism and standard that allows the spend to be captured and, if necessary, pushed through an approval process (which will allow the invoice to be automatically matched and paid). And we mean products and services. A great catalog comes with e-Forms that allow standard services to be requested with minimal specifications (hours/days or fixed tasks, locations, etc.) and, if necessary, be put to quick bid.

But it doesn’t stop there. A great catalog also includes the ability to do simple RFXs for custom product or services not in the catalog. A user simply enters the specs, pushes it to suppliers in the system, gets bids back, selects one, and makes an award, which is automatic if they have the budget and approval authority or routed to the right approver if they do not.

Thirdly, if the user needs something that they really should get help with, they can immediately put in a request for help to a senior buyer with all of the information they have. The senior buyer can then guide the more junior user to a proper catalog product or service if it exists, create a proper RFX/Auction if a proper product or service does not exist and the event value is small, or the senior buyer can take over the process if the event value is large or the buy should be part of a managed category.

Great catalogs capture spend throughout the organization, and that’s the real key to cost control. Knowing how much you spend, on what, with whom, and what percentage is captured by preferred and on-contract suppliers is fundamental to managing cost and defining category strategies. That’s why all true spend analysis projects start by collecting spend from disparate systems and trying to normalize it to a schema that allows it to be analyzed on an apples-to-apples basis across categories and suppliers. But, as we all know, this is typically a monumental undertaking and by the time the data is collected, cleansed, enriched, mapped, and analyzed, which often takes anywhere from 6 weeks to 6 months, the spend is stale. But if all spend goes through a catalog, the centralization, categorization, and cleansed data is already there, and spend can be analyzed in real-time. Changes in the cost profile can be identified quickly and addressed just as quickly.

And that’s why catalogs are still the best cost control tool that you have. What else can you roll out to (tens of) thousands of users across the organization?

RPA – More Useful Than It Sounds!

Originally posted on the Synertrade blog in May 2018.

When you hear RPA, Robotic Process Automation, you probably think of assembly line automation or, if you’re a bit more modern in your thinking, automated invoice scanning and OCR transformation to e-Invoices, and then roll your eyes back in boredom. And that would be quite understandable if that was all RPA was, but RPA is a lot more than that today.

RPA, which might be better understood as BPA — Business Process Automation — and refers to any technology-based business process automation that uses software robots or AI, has advanced considerably since the early days where it started out as primitive screen scraping technology and then, in Supply Management, advanced to document digitization.

We’ve gone from only a few players in the RPA space to dozens of vendors from AntWorks to Verint that provide solutions for industries ranging from Aerospace to Waste Management (because everyone can take advantage of efficiency) that literally automate every data-driven tactically oriented non-value add process you can think of. This process automation includes healthcare processes (electronic health records maintenance and automation, automated online appointment scheduling, billing and insurance provider management, etc.), workforce automation (on-boarding, job assignment, automated scheduling, automatic timesheet creation, review and submission, etc.), accounting (accounts payable automation, expense submission and processing, automated production of reports and balancing, etc.), compliance (workforce vetting, certification and certificate management, regulatory reporting, etc.), banking (front-end and back end process integration, document management, loan application processing, chatterbots, etc.), travel (guest profiling, automatic rate management, automated BI and reporting, robotic concierges, etc.), and so on. Pick any industry and you will find at least a handful of providers offering at least a few automation services.

But you probably only care about how RPA can help you. Well, if you believe the new breed of vendors selling fledgling cognitive procurement solutions, it’s the miracle cure that will solve all your procurement woes. No more transactional headaches, no more off-contract buys, no more surprises that could be predicted from data, and so on. But we’ve all be around long enough to know it’s not that good, at least not yet.

However, it has come along way since the early days and can solve the vast majority of your transactional headaches. Think about all the time-consuming, low-value transactional steps you do throughout the Source-to-Pay process. Centralizing, cleansing, and categorizing data for spend analysis. Collecting market data for market intelligence. Creating and populating expected / should cost models. Instantiating RFXs and Auctions from existing data. Populating optimization models from collected bid and business constraint data. Drafting contracts from templates, selected bids, and e-Negotiation submissions. Automated purchase order creation and submission based on buying schedules, inventory levels, and point-of-sale trends. Automated invoice receiving and m-way matching. Automated queueing for payment and dynamic / early payment discounting based upon matching, supplier acceptance, and cash-flow analysis. Powerful guided buying inside of the catalog, guiding an organization employee as to whether they buy from a catalog, send a request to the Procurement help-desk, or just go down to the local office supplies store or book their own travel. Powerful guided buying outside the catalog that determines whether a need should be a catalog buy, should be a 3-bids-and-a-buy RFX, or should be a strategic sourcing event. And so on.

But it’s even more than that. Fundamentally, it can be the glue that holds your Source-to-Pay process together, allows you to improve your processes, and even allows you to improve your systems worry and headache free. One of the great things RPA has become really good at is data mapping and even federated cross-system master data management.

This means that if you want to, you can use RPA to glue together a collection of best of breed systems to make a virtually integrated system from a data perspective. But it also means that you can easily migrate from a rag-tag collection of systems to a new integrated suite just as easy by using RPA to map and merge all of the relevant data to a single, central, schema that powers a modern Source-to-Pay suite that can be the foundation for all of your day-to-day Source-to-Pay activities. And, of course, you can easily map that mess of a data store that your first-generation Source-to-Pay system runs on to a more modern Source-to-Pay system quickly and easily, even if you’ve built up tens of millions of transaction records, millions of supplier records, hundreds of thousands of employee and contractor records, tens of millions of product and service records, and so on.

A modern RPA can easily crawl classic schemas, identify best mappings to a new schema, auto-define rules for data normalization, amalgamation, and enrichment, and flag only those situations that actually need human review and then literally automate all of the data migration. What used to take months or years can be accomplished in weeks or even days. That’s the true power of RPA, and a power that should not be overlooked.

Workflow Management: The Unsung Villain? Or The Unsung Hero?

Originally posted on the Synertrade blog in May, 2018.

In our last piece we discussed the topic of data harmonization and how it’s much more involved than one may think. It requires the ability to normalize, cleanse, enrich, and structure disparate, duplicate, data across a multitude of sources of various quality. And sometimes it’s not even apparent, even after mappings and enrichment, that two records actually refer to the same entity.

As you might have guessed, data harmonization is not the only struggle that is harder than one might think. Another struggle all organizations face in the back office is workflow management, and in Supply Management, this struggle is especially acute. Why? A number of reasons, including:

1. Workflow processes cross departments.

Think of just the sourcing process. Typically, a buyer is sourcing for another department. The department defines the specs, the buyer puts together a sample RFX, it goes back to the department for comment, comes back to the buyer for updates, goes back to the department for approval, gets posted. When responses to the RFI come in, the buyer evaluates price options, but the stakeholder department evaluates non-price options. Jointly defined weightings are applied and a set of suppliers are selected for an RFP. The joint process is repeated and then, in a short process, one or more suppliers are selected for an award. A contract offer is prepared, and Legal needs to be involved. And this is just simple sourcing. Source to Pay processes often cross the majority of departments in an organization.

2. Workflow processes cross organizational boundaries.

With Sourcing, and even Source-to-Pay, much of the process is internal. The only parts of the process that are external are suppliers submitting responses. But when you get to supplier development, joint product development, and other supply management controlled processes, the process is not easily contained within the four walls of the organization. In supplier development, both parties have to agree upon scorecards, issues, and development options. Then work together on creating a development plan. Both parties have to follow the plan, provide updates, report additional issues, provide resolutions, and so on. This is just one example where workflow processes clearly cross organizational boundaries.

3. Workflow processes vary by category.

It’s pretty obvious even to non-buyers that the process for buying office suppliers is different from the process for buying custom printed FPGAs from the process of acquiring temporary consulting services for the IT backbone upgrade. So, you can’t just implement a sourcing workflow and expect to follow it every time. The same goes for supplier development, product development, opportunity analysis, and other projects that Supply Management will undertake regularly.

4. There are always exceptions.

No matter what the process, there will be exceptions. For example, if a buy needs to be made above a buyer’s threshold, there will be extra approvals. If shipping needs to be expedited, not only will the carrier need to be changed along with the mode, but extra approvals will need to be involved in the process. Supplier development will be according to the issue — quality, delivery, warranty response, etc.

When one sits down and maps out all of the workflow requirements of just the daily processes, workflow management quickly becomes the unsung villain of supply management. Not only are there no well documented process maps for the majority of processes, whose descriptions, if they exist at all, are embedded within category (strategy) documents, but there is generally little to no platform support for these processes. And the more process centric a Supply Management process tries to get, the more difficult tasks become. Process, and workflow management, becomes the villain of daily life.

But with a modern Source-to-Pay platform with proper embedded workflow management, at least for day-to-day buying and supply management activities, workflow management, and the proper processes it enables, can become the unsung hero of daily life. The ability to define customized sourcing and procurement workflows, for every category,
as well as exception workflows, that capture the full strategy and business process requirements, not only eliminates the villainous hassles that workflow management can create when a system doesn’t support it, but makes it the unsung hero of a Supply Management platform, as the buyer doesn’t have to worry about trying to remember and force-fit processes, but simply has to walk through the processes laid out in the system.

So when you are looking for your next Source-to-Pay platform, be sure that the platform, or at least one component of, contains powerful workflow definition and management features that can be configured by senior buyers to support buyers and system users in their daily activities. The difference between this and the status quo will be the difference between light and day.