Monthly Archives: February 2008

Consultants are Cheap!

Last month, over on the CNet blog, Steve Tobak posted a great entry on “when to hire a consultant”. However, instead of repeating all the reasons why you should hire a consultant, I want to echo his sentiment that too many executives still think that consultants are parasites that charge ridiculous rates, waste precious time, and present obvious conclusions when, in fact, good consultants can be the most cost effective business saviors you’ll ever have the good fortune to hire! But I’m not just going to do the traditional “soft-sell” and wave rhetoric. I’m going to put some hard numbers behind my justification of why hiring a consultant, even at thousands per day, is not only a great deal, but maybe even a better deal then what you get when you hire a senior director or vice president.

  1. A top performer demands a high salary.
    Usually 200K to 300K for a high-performer. Let’s say $250K.
  2. A top performer demands pricey benefits.
    Health insurance (10K+), life & disability insurance (5K), 401K matching (10K), and a performance bonus of at least 10% to 20% (25K to 50K) in a good year. This will cost you another 50K to 100K. Let’s be very conservative and say 50K .
  3. A top performer comes with overhead.
    First off, there’s all the standard overhead of maintaining the nice office, the telecommunications equipment, and the IT equipment. There’s also a share of an administrative assistant’s salary, a transportation budget, and a reasonable expense account. This could easily eat up 25K to 50K (or more). Let’s be moderate and say 30K.
  4. A top performer needs a decent vacation to recharge.
    Depending on how long this performer has been with the company, we’re probably talking 4 to 6 weeks. This is a hidden cost, as it means you’re only getting 46 to 48 weeks of work, at most.
  5. A top performer needs to keep his skills up to date, and this will require good training.
    You should allow at least two weeks for any employee. For a top performer, I’d highly recommend three or four weeks of training and education related activities. Let’s be conservative and say this person is an extremely fast learner and you can get away with two weeks. Now your top performer is only working 44 to 46 weeks, at most.
  6. Training costs money.
    Whether it’s courses, workshops, conferences, or self-study guides, expect to shell out for this. A couple of conferences and a couple of courses could easily run you 15K to 25K to keep your top performer at above average performance levels. We’ll be realistic and say 20K.
  7. There will be other costs that arise with respect to raises, promotions, recognition, and performance.
    However, since you can always make them next year’s budget problem, we’ll ignore them for simplicity.

This says that your 250K top performer, that you believe is only costing you approximately 1K a day is actually costing you over 1.6K a day in a conservative estimation, and possibly over 2.1K in reality. (350K to 450K+ over 220 days, vs 250K over 260 days)

Now, it’s still less than a consultant, but let’s not forget the following:

  • Your top-performer will have most of his or her time consumed with the tactical day-to-day operation of the business.
  • If your top-performer is struggling to complete two weeks a year of training or education related activities, he or she is not going to be up to date on new ideas, technologies, and movements within the marketplace.
  • If you’re starting to run into stiff competition or problems within your business, you can be too close to the problem to make good, objective decisions.
  • Even a top-performer can only be an expert on a handful of technologies, processes, or business functions. At least collectively, outsiders will always know more about the best way to run your business with today’s technology in today’s market than you do.
  • It’s an innovate-or-die marketplace out there today. And if we’re in a recession, that’s doubly true.

In comparison,

  • A consultant can focus purely on the strategic, and purely on the problems you need help with.
  • A consultant will spend a considerable portion of his or her time keeping up to date on new processes, technologies, and advancements. Their knowledge is there to be used.
  • A consultant can be much more objective. Furthermore, a consultant probably has a better comprehension of the state of the market you compete in than you do.
  • Even though, like any top performer, a consultant can only be an expert on a handful of technologies, processes, or business functions, you are free to pick the consultant with the skills you need to advance your business.
  • When a consultant puts in a day, a consultant puts in a day. Usually 10 to 12 hours, compared to the 9-5 with a 2 hour lunch an employee will often try to get away with when he or she can. Plus, a good consultant can’t stop thinking about your problem until she goes to sleep at night, and usually starts thinking about it the minute she wakes up.
  • Consultants live by the innovate-or-die mantra.
    and, most importantly,
  • When the project is over, you can cut the consultant loose without any additional cost. In contrast, it could easily cost you six figures to cut a top-performer loose. Furthermore, if you’re smart and do a short initial engagement with a new consultant before agreeing to a long term engagement, the loss associated with hiring the wrong consultant is next-to-nothing. In comparison, the loss associated with hiring the wrong person for a director or vice president job will be hundreds of thousands by the time you add up the losses with dismissing the current employee, finding a replacement, and getting that replacement up to speed.

So, given that a consultant can bring you the badly needed 1) expertise, 2) objectivity, 3) credibility, 4) leadership, and 5) time that you need to be successful, don’t balk at standard consulting day rates. It’s a bargain compared to the value they can bring, especially when you remember that it’s not tactical day-to-day operations that bring you substantial cost savings and new markets, but strategic improvements that consultants can bring with them.

Services Sustainability

Today I’m pleased to welcome John Martin of and Building SaaS.

Sustainability and social responsibility aren’t often associated with services purchasing, as most people tend to think of social responsibility in conjunction with the performance of manufacturing and resource extraction in lower-impact and more-sustainable ways. However, especially with the recent trend toward low-cost-country sourcing of services, the concept of “socially responsible outsourcing”, as one example, is taking root.

Companies buy services to utilize expertise they don’t have internally, to access a different talent pool (at an offshore location), to match their workforce to workload variability, or to take advantage of a supplier’s economies of scale or scope (though this is far less achievable or important for services than for most goods, as many outsourcing buyers have found out the hard way).

Most large companies use a large and growing group of external providers for a broad range of services, from thousands of temporary workers around the world to high-end consulting services. Services are inherently tied to the people that deliver them, and so the key sustainability concept for services is talent pool sustainability. To purchase services in a sustainable and responsible way, companies should adopt practices (and engage with suppliers who adopt practices) that don’t negatively impact the talent pool.

For example, a large employer in a cyclical business has been a significant employer in dozens of small towns for over 50 years. To ensure the development of a talent pool that can support their seasonal business long-term, they have several types of contingent workers such as long-term temps, temp-to-hire, day labor and seasonal part-time temps, each with different responsibility possibilities and education investments. Known as a preferred employer who invests in people long-term, they have worked with their staffing providers to ensure a sustainable talent pool for their highly seasonal business.

Engaging services responsibly is especially important for low-skill services and temporary workers, since they typically receive less training than employees, and hence are more easily left behind by shifts in technology or skill requirements. Responsible companies extend skill-development practices (via their suppliers or sometimes directly) into their contingent workforce. Wages, benefits, and training for temporary workers can often be directly controlled by buyers, and other “Labor Practices and Decent Work” guidelines of the Global Reporting Initiative can also be extended to services suppliers.

When working with services suppliers, some key metrics help demonstrate their commitment to a sustainable talent pool:

  • Staff Turnover: Turnover is the ultimate measure of good employment practices. The specific rate is highly industry-specific, however, so compare suppliers within the same service category.
  • Training Investment: Good training will result in higher productivity and lower turnover – both positive results for the buyer. While training investment is fairly easy to game, it’s still helpful to track it and the positive results that derive from it.
  • Pay Rate: Especially for lower-skill services, many buyers negotiate and track the actual pay rate to the individual worker, to ensure that the worker is getting not only correct pay, but sufficient pay. As a beneficial side-effect, this can also help ensure a sufficient quality level in the work force.

In short, work with suppliers who invest in their services delivery chain – their people.

Supplier development is also important, just as it is for goods. Some types of services that have more innovation are also sourced quite frequently (e.g., consulting engagements, legal services, marketing services), which allows finding and rewarding the innovators who deliver more value.

Part of working with responsible suppliers includes engaging them responsibly. Many services businesses are cash-flow businesses, required to pay their workers weekly, long before the terms of their invoice – so paying them on time can be even more important.

In short, sustainability in services revolves around sustaining and growing the talent pool, which requires responsibly engaging and working with services suppliers who engage in positive practices for their talent.

The 6 Days of X-asperation: Day 6 – Questions to ask your e-Procurement Vendor

For our last post in the X-asperation series, we’re going to conclude with e-Procurement as we tackle the generic questions that you should be asking every vendor, and the types of answers you should be expecting. And just like the X-emplification post, we’re going to keep it short and sweet.

1. What do I have to do to get a good handle on how to make effective use of this technology, and for an organization of my size, how long is it going to take?

You need to answer the following questions:

  • Do I need to alter my processes to implement and use the system?
    If you need to do some process re-engineering, it’s probably going to take a couple of weeks, if not a couple of months, of work before you are ready for the system.
  • What do I need to do to switch over from my current system?
    Chances are you’ll need to undertake either a data integration, or historical data propagation, project and this needs to be adequately planned for. It will probably require at least a couple of weeks.
  • How long is it going to take to train people on the new system?
    You want your people to have some basic training on the new system before you switch over.

An average mid-size organization that needs to switch systems is probably going to need to do (at least) a few weeks of process analysis and preparation before it can switch to a new system, or bring a system in for the first time.

2a. How much functionality is my organization realistically going to be using in 12 months?

e-Procurement is for buying – and that’s as straight-forward as you get. If the tool is easy to use, then, provided that buyers can buy what they need, when they need it, they’ll use the e-Procurement tool to create requisitions, which in turn become purchase orders when authorized and result in invoices when accepted by the suppliers, which in turn get sent to the accounts payable system(s), and they’ll be doing this from day one. An e-Payment tool will be used to pay approved invoices to suppliers that accept e-Payments using accepted payment methods such as ACH or wire.

Unfortunately, lots of things can’t be bought effectively using many of today’s e-Procurement systems, despite vendor claims to the contrary. These include “soft” categories like commercial print, PC’s and computing, and contingent labor. Furthermore, allowing everyone in the organization to punch out to an office supplies catalogue typically doesn’t save a dime, although it may reduce the number of complaints to management about “how slow” Procurement is. So be cautious — very cautious — about the claims of e-Procurement vendors with regard to overall savings. After all, one only has to look at the history of e-Procurement, and the savings claims made in the past that were never realized, to understand that achieving savings goals is a much harder problem than simply enabling a catalogue buying system.

2b. How much functionality do I really need?

The ability to locate the goods and services you need in the system quickly and easily, the ability to create purchase orders, the ability to authorize purchase orders, the ability to accept and approve, or reject, invoices, m-way matching, and simple upload utilities that allow correctly formatted invoices to be uploaded directly into the accounts payable system(s),

2c. And how does this functionality solve my #1 pain today, which is X?

If you’re looking at e-Procurement, then you have two problems. Your tactical procurement team is taking too long to place and approve orders and your maverick spend rate is too high. You’re looking for a tool that makes it easy to add contracted goods and services to the system, to specify contract terms, conditions, and rates, and to allow approvers to verify that if there is a contract that covers a purchase, the contract is being used. If it doesn’t help your buyers buy and your CPO keep maverick spend under control, it’s not the tool for you.

3. How much training is my team going to require to effectively use the software? How long is it going to take them to absorb this training?

It shouldn’t take more than a day to get even the most junior of purchasing agents up and running on the full capabilities of the tool. Remember, it’s supposed to make their life easier – not harder!

4. How much is this software REALLY going to cost me in the first year and each subsequent year?

It depends on whether you’re buying a point solution, or a true end-to-end e-procurement system, and whether or not the system is enabled with catalogues, punch-outs, networks, or marketplaces. Point solutions are literally a dime a dozen and should be in the low five figures per year. True end-to-end solutions are rarer, and those integrated with useful catalogue or network solutions rarer still. True end-to-end solutions will be in the mid to high five-figure range per year and those integrated with networks or e-Payment solutions will be in the low-end of the six figure range per year.

5. You say you care about your customers and that you are going to provide great service. Prove it!

Ask for references. Talk to them. If the vendor has an upcoming user meeting or conference, ask to go to it. Ask for examples of results their customers have achieved on the platforms recently, and how they can help you achieve the same.

6. Can I take it for a test drive or a short term lease?

e-Procurement, by definition, is web-based, and good systems are at least hosted ASP, and most of the new systems are true multi-tenant on-demand SaaS, so the vendor should have no problem setting a couple of buyers for your organization up on the system for a test drive and should be able to give you access to any standard vendors it has integrated through punch-out, XML, or other means, into its offering. And they should be willing and able to give you short term access (for a week or two) to review it for free.

7. Can I buy it or implement it in pieces?

Just like you should buy the entire e-RFx or e-Auction tool functionality up-front, you should buy the entire functionality of the e-Procurement and e-Payment tool up front, as it shouldn’t be that expensive and you should get a slightly better price that way.

The 6 Days of X-asperation: Day 5 – Questions to ask your Contract Management Vendor

Just like we did in the X-emplification series, we’re going to continue with Contract Management as we tackle the generic questions that you should be asking every vendor, and the types of answers you should be expecting.

1. What do I have to do to get a good handle on how to make effective use of this technology, and for an organization of my size, how long is it going to take?

You need to figure out how many contracts you have, where they are located, and how many are in electronic form. Although this question might sound easy, in your average large organization, this question is a lot harder to answer than you think it would be – and should be. You’ll probably have to canvas dozens, if not dozens of dozens, of individuals to find out how many contracts you should have, only to find out that you don’t know where half of them are. In some cases, you’ll have to go back, a bit embarrassed, to your supplier and ask for a copy.

If the contracts are in electronic form, then it’s simply a matter of identifying the formats, running them through conversion software to get them to a common format, and tagging them. But if they are mostly in paper form, then you’ll have to do a lot of scanning and manual correction of the OCR errors before you can start tagging them.

Depending on the length and complexity of the contracts, it could take anywhere from 15 minutes to an hour or two to get a contract properly loaded and tagged, with alerts and expirations, into an enterprise contract management system. If you have a thousand contracts, you need to allow at least five hundred man hours, or 3 man months, of resources to get this done, once the contracts are in electronic form. Finding and scanning them could take another 3 man months (or more). It’s true that you can deploy a number of resource simultaneously to get this done faster, but, in real time, I’d allow at least 3 weeks to identify, find, and scan the contracts and 2 more weeks to get them in the system, tagged, indexed, and verified.

So, if a vendor tells you, as a large organization, “no problem – we can have you up and running next week”, either they don’t really understand the complexity of an average large organization undertaking this project for the first time or they’re trying to pull the wool over your eyes. Either way, I’d be wary.

2a. How much functionality is my organization realistically going to be using in 12 months?

All of the core functionality around contract storage, retrieval, and, if supported, construction. This means that you’ll be using the repository, search, meta-data, alerts, import, export, and contract authoring features. Any features beyond that will probably not be used, or at least not on a regular basis.

2b. How much functionality do I really need?

When it comes to bells and whistles, contract management is like the Microsoft Office of the e-Sourcing world. Some of these tools have so many “features” that it makes your head spin. But we already know it’s not “features” that you are looking for when you are shopping for enterprise software, it’s “functionality” and, in particular, the functionality that you need to do your jobs, and do them well.

To this end, the following “functionality” is critical when you are evaluating enterprise contract management technology:

  • A solid, robust, scalable contract repository,
  • User-definable and extensible meta-data support,
  • Alert and expiration definitions, and
  • if you are going to be using the tool to help you generate contracts,
    Contract templating capabilities.

Just remember that, in contract management, the ability to author a contract in the tool isn’t that important. After all, Microsoft Word is quite cheap compared to the cost of some of the Enterprise Contract Management solutions on the market and Open Office is free – and both are probably much more powerful than any editor the tool is going to provide (unless it integrates with these tools). In-tool editors are nice, but don’t sacrifice powerful metadata and tagging capabilities, or a big wad of cash, for a gee-whiz editor.

Finally, remember (as with most e-sourcing tools), you may someday be moving on from whatever tool you select today. Nothing is “forever.” There will come a time when you want to pull the data from this tool into another tool, such as a spreadsheet or relational database or different contract management system. The contract management tool should allow you to pull all of the information out, preferably in flat file format (not some complex XML format) such that desktop tools (and other applications) can trivially import it. You may be surprised to find that some major vendors cannot provide this functionality, so make sure to ask for it.

2c. And how does this functionality solve my #1 pain today, which is X?

If you’re looking at a contract management solution, your biggest pain is that you are having difficulty keeping track of all of your contracts with respect to terms, conditions, and (evergreen) renewal dates and need an easier way to not only track this information, but to access previous contracts and standard templates for standard terms and conditions when negotiating a new contract. If you’re looking for savings, you’re looking at the wrong tool. A contract management tool gives you efficiency, consistency, and helps you with your compliance initiatives (but does not solve all of the problems). It doesn’t deliver up-front savings like e-Auctions, spend analysis, and decision optimization. It supports your efforts to insure that negotiated savings are realized. It’s important, but it won’t save you big bucks on it’s own.

3. How much training is my team going to require to effectively use the software? How long is it going to take them to absorb this training?

A few days. Make sure your team is appropriately trained on the process to load a contract, create the meta-data, create alerts, run status reports, search the repository, and, if the functionality is included, create templates.

4. How much is this software REALLY going to cost me in the first year and each subsequent year?

Basic contract management is not much more than document & content management, which is a commodity – especially given the number of free open source systems out there. Best-of-Breed enterprise contract management is also becoming mature, with a number of players offering reasonable, and reasonably equivalent, functionality. Therefore the cost for a basic system should not be more than for an e-RFX / e-Auction system, and the cost for a true enterprise system somewhere between the cost of an e-RFX / e-Auction system and a spend analysis system.

The maintenance fee for a basic contract management system should be on par with that of a basic e-RFX / e-Auction system while the maintenance fee for an enterprise contract management system should be midway between the fee for the basic system and the fee for a spend analysis system – around 10% to 15% per year.

On-demand installation should be free. On premise should cost no more than a day of consulting. However, you should consider retaining a project manager to help you get your contracts scanned, tagged, and loaded, with appropriate alerts, in a correct and efficient manner. The rates should be comparable with third party consulting rates.

5. You say you care about your customers and that you are going to provide great service. Prove it!

Ask for references. Talk to them. If the vendor has an upcoming user meeting or conference, ask to go to it. Ask for how long it has taken some recent customers to get the platform up and running with the majority (80% +) of their contracts and how much penetration they have achieved throughout the organization with the system. Verify this with the references.

6. Can I take it for a test drive or a short term lease?

Considering that most solutions are web-based, they should be willing to set up a playground where you can load a few dozen contracts on a trial basis and get a feel for the system. They should be willing to do this at a very low fee – equal to no more than a couple of days of consulting time.

7. Can I buy it or implement it in pieces?

Just like you should buy the entire e-RFx or e-Auction tool functionality up-front, you should probably buy all of the functionality that you’re going to want up front, since it should be much more cost effective to do so.

The 6 Days of X-asperation: Day 4 – Questions to ask your Decision Optimization Vendor

Just like we did in the X-emplification series, we’re going to continue with Decision Optimization as we tackle the generic questions that you should be asking every vendor, and the types of answers you should be expecting.

1. What do I have to do to get a good handle on how to make effective use of this technology, and for an organization of my size, how long is it going to take?

The first thing you have to do is get a good understanding of what strategic sourcing decision optimization is, what it can do for you, and, most importantly, what data you’re going to need. I strongly suggest you read the wiki-paper authored by yours truly if you haven’t already. The wiki-paper will tell you:

  • The requirements of a true decision optimization system
    which will insure you don’t get taken in by a cheap imitation decision support system
  • The basic capabilities a decision optimization system should have to be truly useful for strategic sourcing decision optimization
    which will insure that the decision optimization system you select is most appropriate for the problems your team faces as sourcing professionals
  • The basic requirements for success when using a decision optimization system
    which include good forecasts, appropriate cost breakdowns, and knowledge of the required, vs. desired, business rules
  • Ten strategies for success
    which will help you get the most out of every strategic sourcing decision optimization project

Then you need to figure out what your potential return is from strategic sourcing decision optimization. Although every project will benefit, the reality is that decision optimization is still relatively expensive technology to buy and the amount of work involved in these projects can be considerably more than an auction. This sometimes requires the time of senior professionals, which can add up. If you’re a small or mid-size company whose largest sourcing project is 10M — and you only expect to save 3%, primarily on reduced freight and inventory by way of better allocations, because it’s a buyers market and auctions work very well — then, considering that the cost of buying, maintaining, and using a good solution starts in the mid six-figures a year, it’s probably not for you. However, if you’re a global 3000 company with a dozen or more sourcing projects in the 50M to 500M+ range, and a possibility of savings of 5% to 15% per project, and your total potential savings is in the 50M to 150M range in the first two to three years, then you should identify the right optimization system for you and start using it as soon as possible.

Once you’ve decided optimization is a useful technology, and one you should be using, you need to review the categories that you will be sourcing in the next 12 months, and then rank them by dollar amount and complexity. The projects that appear in the top half of both lists will be good candidates for strategic sourcing decision optimization. (Note that if your annual spend is in excess of 1B, the doctor can tell you right now that properly applied decision optimization technology will generate ROI for you.)

Armed with the potential projects, you need to devise appropriate cost breakdowns for each of the goods and services under consideration, identify other relevant non-cost and qualitative factors, and prepare the appropriate surveys and RFPs/RFQs so that you can get projects underway relatively quickly. Optimization only achieves significant returns if done right – and this requires that you get accurate bids and cost breakdowns where the cost of the good or service is separated from the freight cost, and any relevant costs such as duties, differential costs of waste and returns, and discounts are taken into account. The extra preparation is definitely worth it when you consider that studies done by Aberdeen in 2005 and 2007 (as referenced in the wiki-paper) found that organizations that employ advanced sourcing methods based on decision optimization save an organization, on average, 12% above and beyond what can be saved in an e-Auction or basic sourcing project.

The amount of time it takes really depends upon the skill-level of the people you have. They have to wrap their minds around decision optimization for strategic sourcing, understand what it really is, how they best use it, and how they have to approach decision optimization sourcing projects and data collection to get the most bang for their buck. If they are junior buyers in skill-level, it could easily take them a few months to truly grasp the basic concept, and chances are they will never be able to take full advantage of the tool until you upgrade their sourcing skill level (through an appropriate certification program such as the ISM CPSM or Next Level Purchasing (now the Certitrek NLPA) SPSM, for example). If they are senior buyers in skill-level, they should be able to grasp the basics and re-design the RFXs for the first project within a couple of weeks.

2a. How much functionality is my organization realistically going to be using in 12 months?

Your senior buyers should be using all of the functionality in the strategic sourcing decision optimization tool within 6 – 12 months. The situation now isn’t as it was when these tools were first hitting the market place 7 years ago (at which time the UI alone was so complicated you needed a graduate degree just to understand it). A good tool has a clear UI and good data import capability that allows you to specify the categories and items under consideration, the suppliers who can supply those items, the locations where you need those items (which may be done by way of groupings), and the cost breakdowns (at least by adjusted unit cost and freight cost). The tool should be able to import data from an appropriately formatted excel worksheet, or from an e-RFX or e-Auction module if it is integrated into a sourcing suite. Furthermore, modern software allows each type of constraint that can be defined to be clearly delineated, and step-by-step wizards exist to help you define the constraint appropriately.

Your intermediate buyers should be able to master the basic constraints in this time-frame, and be well on their way to improving their sourcing decisions and relative skill levels.

Even though the tools have improved significantly, strategic sourcing decision optimization, by its very nature, requires a more advanced skill level than other tools in the e-Sourcing suite and your junior buyers may not be up to the challenge. You will need to provide them the training they need to upgrade their sourcing competence to an intermediate level before you can expect them to master the tool, even though your technologically savvy junior buyers will be able to get a reasonable grip on the basics of setting up a scenario and defining simple constraints in a rather short time frame. You have to remember that the use of strategic sourcing decision optimization is advanced sourcing, and this requires more than just a friendly tool – it requires buyer skill.

2b. How much functionality do I really need?

When it comes to model development and solver capability, as much as you can get. This is still a developing technology, and even though you can achieve considerable savings above and beyond an e-Auction just with what’s out there today, there’s still a long way to go.

When it comes to add-ons, it depends on what the company is offering you as an add-on. If it’s services, then, considering you should have guidance on your first few projects, you should strongly consider them if they’re reaonably priced. If it’s custom integration services to your RFX or e-Auction platform, then, assuming these are the right RFX and e-Auction platforms to be using, and the integration is priced competitively, then this is also worth considering. However, if the add-on an enhanced solver module, I’d ask why this isn’t part of the base offering (as it should be).

However, one thing that is important to note, if it’s not easy to load the data into the tool, it likely won’t be used at all. Thus, it’s important to make sure that not only is the import or ETL tool included as part of the basic functionality, but that the import functionality is also easy to use.

2c. And how does this functionality solve my #1 pain today, which is X?

If you’re looking at strategic sourcing decision optimization, chances are you are seeing diminishing savings from your sourcing projects and need a way to improve returns. What you’re looking for here is an answer not based on technical competence, but on sourcing experience. You want the vendor to tell you that their product has been applied successfully by companies in a number of verticals on a number of categories and that, based upon their experience in and around your industry, they expect that you will be able to save in the 5% to 15% range on a well-defined set of categories. You want to know that they have the experience to help you select the right categories to start with that will help you get some quick wins and support for the new technology.

3. How much training is my team going to require to effectively use the software? How long is it going to take them to absorb this training?

It should not take more than a week to get your intermediate and senior buyers up to speed on how to use the tool. However, the training is not really going to be absorbed at a deep level until your professionals apply the tool on a few projects, which should be done under the guidance of an experienced professional who can insure that your team is tackling the project in an optimal manner. Thus, it will probably take a few months, at the minimum, for your senior buyers to truly master the tool.

4. How much is this software REALLY going to cost me in the first year and each subsequent year?

Although real strategic sourcing decision optimization has been around for almost seven years, it only became usable in the last few, and due to its relatively low adoption rate to date, and continued development, it’s still a reasonably new offering. You should expect to be paying in the mid six figures per year, depending on the power of the solution and your hardware and solver license requirements. (Most platforms are built on top of industry leading solvers, such as Ilog’s CPlex, which can run 25K to 50K per license. Plus, you need high end servers if you want to build large models and have them solve relatively quickly. Thus, even an on-demand offering is going to be pricey if you want dedicated solvers and hardware, which you could need if you have large models or intend to use the platform significantly.)

Furthermore, since this technology is still emerging (like real spend analysis), updates should be regular and maintenance will be higher than for e-RFX and e-Auction, so you are probably looking at maintenance (for behind the firewall or ASP solutions) in the 20% range.

Installation should not be time consuming, and should not require more than a few days of consulting. (On-demand should be free if you’re using a basic service that uses shared optimization resources, but if you are asking for dedicated resources, you should expect to pay for some consulting time as a dedicated resource will need to deployed to get this done.)

5. You say you care about your customers and that you are going to provide great service. Prove it!

Ask for references. Talk to them. If the vendor has an upcoming user meeting or conference, ask to go to it. Ask for examples of results their customers have achieved on the platforms recently, and how they can help you achieve the same. But most importantly, ask them if they’ll help you with your initial pilot project at a reasonable consulting rate and see what kind of results they deliver – with their tool.

6. Can I take it for a test drive or a short term lease?

Considering that this software is usually either web-based or a fat client that runs on your desktop, there shouldn’t be any problem for your provider to set you up with a single instance, or copy, for you to use on a pilot project – which they should be comfortable with you undertaking at a low consulting rate – equal to the cost of the consultant that guides you through the pilot project.

7. Can I buy it or implement it in pieces?Just like you should ultimately buy the entire e-RFx or e-Auction tool functionality up-front, you should buy the entire functionality of the strategic sourcing decision optimization tool up-front as well, but I’d hold off on buying dedicated hardware and solver resources until you’re ramped up and ready to maximize usage of such resources, as a single dedicated high-end machine with a dedicated CPlex license will cost you (well) over 50K a year in additional cost. If you’re maxing out your solver, dedicated resources can be worth it when you consider the ROI that accompanies strategic sourcing decision optimization. But if the hardware is just sitting there, that money is better spent on consulting services to help you get up to speed on how to maximize use of the tool.