A recent article over on Cracked listed 7 Secrets Only Two Living People Know (for some reason … that the doctor must admit he doesn’t understand in a few of the cases). While entertaining, it did cause me to ask why there are so many truths in sourcing that most people still don’t seem to get. Since some days I feel like only 2 people know the following, I decided I should do my own post on 7 sourcing secrets more than 2 people should know. Because you really, really, really should know the following sourcing “secrets”. After all, they’re truths, even if no one’s bothering to tell you. So without further ado, here they are:
1. Spend Analysis is flexible Data Analysis, not canned reports on a data warehouse populated via automated classification
Real spend analysis is the ability to dive into your data and find out not just where your true spend is higher than it should be, but why. This requires you to have the ability to slice, dice, and cube your data on any dimension you can think of, because you’re never going to know where the losses are until you find them. (After all, if you knew where your holes were, wouldn’t you have plugged them already?) Canned reports on a static data warehouse can only tell you how fixes you’ve already implemented are working, not where the holes are. Furthermore, “automated classification” just doesn’t work. Any good consultant worth his salt can load your data into a real data analysis product and find two dozen mistakes in twelve minutes. You need the ability to define and redefine mapping rules on the fly as all automated classification can do is fix previously identified mistakes. It can’t identify new ones. Software isn’t intelligent. People are.
2. e-RFX is electronic support for the full information and quote gathering cycle, not just bid collection
If all your e-RFX does is allow you to collect bids, it’s not e-RFX. It’s e-RFQ, and a poor e-RFQ at that. It should allow you to create questionnaires, surveys, and entire RFX packages with closed and open-ended questions, allow you to compare responses side by side, and allow you to collect not only all of the pricing, but all of the discounts, rebates, and promotions the supplier offers. It should help you manage the process, guide you through it, and support data import and export in open formats so that you can also use analysis, optimization, and contract management tools.
3. A Reverse Auction is simply an online auction event, it’s not a substitute for proper sourcing project management
I follow the space closely and not a month goes by where I don’t see an article on how Company XYZ is now refusing to participate in online auctions. When you dig down, this is because they had a horrible experience. When you dig deeper still, you find out it is typically either because Company ABC simply threw an auction tool at the supplier and told they had to bid through the tool or lose all their business or Company ABC threw up an auction tool and said they’d award to the lowest bidder but ended up going with a different supplier, usually the incumbent, after the auction closed.
I find this appalling, because e-Auctions, like e-RFX, are not only a great time saver, but a great way to bring parties together from around the globe and allow them to participate in an e-Sourcing event that, when run right, is more transparent, educational, and profitable for all parties concerned than traditional methods of sourcing where you get bids by phone and fax until you find three bids you like and then meet in a room to “negotiate” until a deal is struck with a winner. (And I use the term “negotiate” loosely because old style purchasing methods usually boil down to the party with the most leverage beating up the party with the least leverage.) But this is only true if the event is run right. This takes proper project planning and management. Tools can facilitate the process, but they can’t replace it.
4. Decision Optimization is for everyone, not just for math geeks
I’ll admit this is my own personal bandwagon, but having seen savings of over 40% and ROIs of over 400 on a number of projects, and average savings in the 10% to 20% range and average ROIs of 5X to 10X or more, I think I have a good reason for riding it. Despite the fact that true self-service decision optimization for sourcing has now been around for almost a decade, it’s still the “black sheep” that almost no one uses — and it’s a real shame because now is the time you need it most. Furthermore, the new tools coming out of the leading providers are a lot more usable than the first generation tools and can be easily used by any college graduate who can build a cost model and specify some business constraints. In other words, if you have the pre-requisites for strategic sourcing, you can use these tools to save time, to save money, and make better, more informed, decisions.
5. Contract Management is just a new name for document management with integrated monitoring, it’s not a replacement for contract managers
Lately I’ve noticed how contract management is coming into vogue. And while that’s a good thing, it’s important to understand what contract management is and isn’t because it seems that some vendors, and some publications, are promoting the new offerings as the latest and greatest tools to solve all your contract woes when the reality is that these tools are nothing more than document management tools with monitors and alerts. I won’t deny the importance of having a good contract management tool that can monitor expiration dates, contract pricing, and, most importantly, invoiced pricing against contracted rates, but these tools, even if they contain sophisticated contract creation capabilities, can’t replace a contract expert, a master negotiator, or a good spend analysis tool that can uncover devious work-arounds by less-than-reputable vendors looking for a way to make back that buck they gave up in negotiations. (For example, I’ve talked to a number of consultants who told me how they found that some office supply management vendors regularly changed SKUs to bill you twice as much for that pen as it’s really worth.)
6. e-Procurement is tactical, and not a substitute for e-Sourcing
There’s still a lot of confusion in the marketplace between what is e-Procurement (and how it relates to P2P, EIPP, and the other new acronyms old players are coining to differentiate their new, streamlined, offering) and what is e-Sourcing, even though it should be fairly clear cut (as I attempted to outline in this post on why it’s sourcing and procurement). A few of the e-Procurement vendors are even claiming that you don’t need sourcing at all if you use the wisdom of crowds (which is not the case because there’s a big difference between a great deal on a commodity office supply and a great deal on raw cocoa or custom circuit boards, which are not commodities). Sourcing is the strategic part of the purchasing cycle, procurement is the tactical. You need both, and one is not a substitute for the other.
7. It’s not what you know, it’s what you can learn
Plain and simple,
- it doesn’t matter if you’ve been doing it that way for 20 years if it’s not optimal,
- shift happens, and
- whatever happens, the world of tomorrow will not be the world of today.
You have to keep learning. That’s why this blog is here.