Why can’t a new year come without all of my fellow bloggers making hopeful, yet unrealistic, predictions about the upcoming year? And why can’t they stop inquiring about mine? Because, the reality is that 2014 is going to be 2013 part II, which was 2012 part II, which was in turn 2011 part II, which was in turn 2010 part II, and which was in turn 2009 part II. Supply Management, like many sectors, has yet to finish recovering since the financial crisis of 2007-2008 and there has been relatively little in the way of game-changing innovation to pull people back to the table, primarily because a lot of the best (and most innovative) solutions on the market that companies should be buying sound like the solutions they bought ten years ago — solutions which never delivered on their promises.
Back in the noughts, many Sourcing and Procurement technologies were naughts when it came to delivering on their promises, and left a bad taste in the mouth of many earlier adopters. Consider the following examples, in no particular order:
Typically, e-Auctions worked great the first time when the consulting or solutions company was allowed to pick the category the solutions’ company knew would work great (based on current market conditions), but then backfired the second time. When the auction was run the first time, the supply (greatly) exceeded demand, and the buyer was able to cut a lot of fat out of the margin. But then, as the global economy was growing, by the time the buyer got back to the category, supply was constrained, the supplier’s raw material costs were rising, and there was no fat left to trim. Lucky buyers saw a cost reduction of 2% or 3% (compared to the 12% or 23% they saw in the first auction) but unlucky buyers actually saw costs increase!
In the early days, Procurement and AP Automation technology suppliers were promising to solve this problem by way of cXML, OCR, or Supplier Networks, each of which have their failings. cXML required the supplier to have a solution that was capable of delivering invoices in cXML, which, in the early days, was limited to suppliers who also used Ariba (who developed the protocol), and as this was a small percentage of the supply base, it was a dismal failure. OCR, which was, and is, still maturing, also proved to be a train-wreck as it failed miserably on poorly formatted invoices, invoices with fonts that were too small, invoices that were hand-written or that had hand-written notes, and invoices that used unrecognized abbreviations — which, combined, were the majority of invoices.
In the early days, the tools were very difficult to use, classification and cleansing was even harder, and most companies had to outsource the analysis which often costed high six figures when all was said and done. In addition, since most vendors didn’t understand the operations of the company intimately, or the many ways the different business units categorized their data, and relied heavily on simple auto-classification to speed up the project (and attempt to make it more profitable for them), the classifications were often filled with classification and categorization errors that could only be corrected by changing the rule set and rerunning all the data, which typically took the provider at least a week. And if you wanted to see the data classified (or cubed) another way for comparative purposes, forget it.
The purported answer to catalog proliferation, all punch-outs did was proliferate their own set of of problems. Just like many AP departments were drowning in paper (invoices), many Procurement departments were drowning in paper (catalogs). Punch-outs were supposed to solve that problem, as all you supposedly had to do was punch-out from your shopping-cart to a punch out to find what you wanted, no catalogs needed. Well, for this to work, the supplier had to support punch-out, the supplier had to have enough technical sophistication to support multiple pricing models (and always apply your contract pricing), and your IT team had to have the technical sophistication to properly integrate your supplier’s punch-out. And then you had to rely on the supplier to actually get the contract pricing right. Did everything go right all the time? Not even close.
And what are the leading Supply Management companies promoting today? Come back tomorrow to find out.