Monthly Archives: September 2014

It’s Conference Season Again — Do We Have to Talk About the Future?

Conference season is around the corner and, with it, plenty of talks on the Future of Procurement, Procurement in 2015, and Procurement 2025 — What it Will Take to Get There.

Regular readers will know the doctor is beginning to really despise this. Why? First of all, as will be outlined in an upcoming series of posts, it’s a lot of the same old, same old … which, in some cases, will be recycled for the tenth year in a row. Second, many* of the solution providers will be doing their best to instill in you an unnecessary sense of urgency to adopt second rate sourcing and procurement solutions that you aren’t ready for or that won’t deliver the returns you need now. (While 9 out of 10 companies do need better sourcing and procurement solutions, the solutions these companies need to start with often aren’t the solutions that money hungry solution providers push upon them.) Third, and most annoyingly, come the questions on what does the doctor think the future of Sourcing / Procurement is.

Why is this annoying?

  1. A Future Vision Doesn’t Change Much In Six Months

    Conference season is every six months, but unless a radical, ground-breaking, unexpected innovation hits the scene, between one conference season and the next, one’s future vision is not going to change a heck of a lot. And when one considers there has not been any radical new offerings in Supply Management in over 5 years, one’s future vision doesn’t have much reason to change at all.

  2. Tomorrow Has Come And Gone Many Times, but The Promised Future Has Not Arrived

    If you look at the predictions for 2020/2025, they are not that much different than the predictions for 2010/2015 that were made 10 years ago. Why? First of all, as per our last point, there haven’t been any radical new offerings in Supply Management in over 5 years (just steady improvements, with a few providers progressing much faster than others). Second, adoption of mainstream sourcing and procurement solutions remains slow. Third, the best solutions, and the advanced solutions that an organization really needs to make an impact on their Supply Management return, have not yet been adopted outside of a handful of best-in-class organizations.

  3. It’s Not What You Think the Future Will Be, It’s Where You Need To Go

    When an organization asks What’s the Future of Procurement, it’s asking the wrong question. First, while most of the consultancies, analyst firms, and providers feeding these consultancies and analysts firm their provider preferred messaging tend to agree on what the future is at a high level, each tends to tailor their message to the product or service offerings they can deliver to you today. Second, the future is in a state of flux due to uncertainties in supply management, business, and globalization. Third, and most important, it doesn’t matter what the future is, it matters what the future needs to be for your organization to succeed. The question an organization needs to ask is what is our Procurement Future — where do we need to go to succeed.

So while it’s very important to plan for the future, it’s very annoying to keep talking about it again and again in a way that adds nothing to the message. So, since the medium is the message, unless you want to be annoying, let’s ditch all this feel-good future talk and focus on figuring out how to get the right solutions into the companies that need those solutions now if those companies are to have any hope of having a future. Capis?

*Many, but, fortunately not all. But do you know enough to tell the difference?

Optimize, don’t Compromise!

Continuing on our theme of analysis and optimization, every e-Sourcing suite on the market will support your organization in its sourcing activities, but not every product will allow your organization to optimize it’s sourcing activities.

Optimization requires advanced sourcing capability, and advanced sourcing requires the ability to analyze data, not just collect and report on data.

This means, that at the very least, you will require:

  • true spend analysis,
  • true category analysis,
  • true cost-based bidding, and/or
  • true bid optimization.

Without at least one of these capabilities, you’ll never optimize your spend. So don’t even both to try without them.

Why Bidding Flexibility Is Important to e-Auction Success

Regardless of what you want to call it — expressive bidding, lotting, market baskets, informed sourcing, etc. — the ability to let a supplier bid the way they can give you the best price is very important to e-Auction success. If all you can support is simple auctions on an item by item basis, and quotes on an item by item basis, you are not going to get the best deal.

This is rather easily illustrated. For example, let’s say your business is clone computer assembly for mid-sized businesses who don’t want the Dell or HP premium. Let’s also say that you buy six different components for these computer assemblies: cases, power supplies, motherboards (with on-board everything to keep it simple), memory, hard drives, and cable packs.

If you are forcing a supplier into separate bids by item, and the level of detail they can quote is price per unit, shipping per unit, and extended warranty per unit, you’re probably going to end up with quotes looking like this:

Supplier 1 Supplier 2 Supplier 3
Component Unit Freight EW Unit Freight EW Unit Freight EW
Case 20 5 1 22 4 1 18 6 0
Power Supply 40 3 6 36 4 3 38 4 2
Motherboard 199 5 24 195 5 19 189 5 30
Paired Memory Pack 49 2 4 47 3 6 51 3 4
Hard Drive 78 4 12 74 3 8 81 4 7
Cable Pack 22 4 0 24 3 1 19 5 0
Total 49 2 4 305 12 30 37 11 0
Grand Total 450

Not bad for a clone server, but if you bid out the basket and allow the supplier to bid on just the components they want and do so as a bundle, you might find that you get this result:

Case Power
Supply		 Mother-board Memory Hard
Drive		 Cables Freight Warranty
S-1 B-1   19   38   20   8   5
S-1 B-2   45   71   5   8
S-2 B-1   20   33   6   2
S-2 B-2   195   14   5   10
S-3 B-1   45   72   5   9
S-3 B-2   185   14   7   30
Grand Total 414

An 8% savings by allowing a supplier to bundle bids according to their operational efficiencies!

Get it now?

marketdojo – A Dojo Where You Can Plan your Own Path

In our last post, we introduced you to marketdojo, a state-of-the-art do-it-yourself e-Negotiation suite that supports complex RFX and e-Auction events as well as integration with their categorydojo product that helps a user determine appropriate sourcing strategies for each category and prioritize those categories based on the expected size of the opportunity.

In yesterday’s post, we described their basic marketdojo product which consists of an RFX and e-Auction offering (which supports multiple RFX types and Auctions). Today we are going to discuss their categorydojo product, which is one of the two real differentiators between them and the other players targeting the low-end of the e-Sourcing market (in an effort to bring smaller companies out of the Purchasing Dark Ages where some still remain).

A lot of consulting firms have been doing the category analysis that categorydojo has been doing for years, and a few companies have even built simple opportunity analysis tools to help you figure out how what opportunities you should be chasing, but the doctor has yet to see any tool that is as clean, streamlined, and useable by an average buyer without a lot of training or consultation. This is one of the two real differentiators that marketdojo has built and one of the two features that actually impressed the doctor, which is not easy to do if you are yet another e-Sourcing or e-Procurement provider considering the dozens upon dozens of tools he’s seen over the last fifteen years. Basic suites are commodities now, and the most basic suites are free.

Once you’ve activated marketdojo, giving categorydojo a spin is as simple as going to categorydojo, clicking on the Dashboard link at the top of the page, and activating it.

Once it’s going, you create a spend portfolio (by selecting the Create Portfolio option) where you define your top categories, and then go through a wizard-driven Q&A about each category to help the expert system underneath properly classify and rate your category. Category creation can be as simple as category name, currency, average annual spend, and a notation on whether or not the spend is subject to EU Procurement Directives (if you are in the public sector). Then you define subcategories, their component spend, expected spend trends, and contract term. Then you define your perception of market conditions and bid complexity and you’re off to the races. Once you’re done, the tool presents you with a recommended sourcing strategy, which in the marketdojo suite, is initial RFI (because it’s not ready for a market event or a market event is not expected to be successful at this time), RFP (because it’s not auction appropriate), RFQ and standard e-Auction, or RFQ and Reverse Japanese Auction — and charts it on a quadrant graph relative to your other categories.

Then, once you have defined a set of categories, you can deep dive in and see the relative spend vs complexity for each category, the time vs. return, and most importantly, the power balance for each category and what it means to your organization and the expected savings. The founders, with a long history in sourcing, built up a knowledge base on different categories and expected savings targets and built this in to the evaluation from day one. Then, upon product launch, they made sure that categorydojo was integrated with marketdojo so a buyer could push an award back after an event was run so the award, and the savings, could be evaluated against the expected savings. This result was used to tune the models over time to the point that a buyer can have confidence that, at least 9 times out of 10, the available savings is within the range predicted by the tool (if the market conditions have been accurately captured and the suggested strategic approach is taken). I’ve seen the reports (which, by the way, do require a paid license), and, for every category I’m familiar with, the range is a realistic savings range for a company that hasn’t properly sourced that category before.

Finally, once you have all of the spend categories defined, and have worked your way through the reports, the tool lets you prioritize the categories so that you can build an effective sourcing plan for the year.

The tool is well done and easy enough for any buyer to use without a £5K a day senior consultant from a Big 6 consultancy! (Which means that the tool, which only costs £1000 per user per year, pays for itself as soon as you use it because each category analysis from a Big 6 will cost you at least £5000, and that buys an unlimited one user license of marketdojo for a month, which will help you realize your organization’s savings potential!)

If you’re at the lower end of the mid-market and in need of a (better) e-Sourcing tool, I would strongly suggest that you check the marketdojo out. Even though they have a few clients in the higher end of the mid-market, they are really designed for the low-end, and they fit very nicely there.