Monthly Archives: July 2015

There’s Nothing Wrong With Using Upstream vs. Downstream

Only with trying to fix a continuous process to a discrete point in time.

Confused? Let’s back up. Last Friday the doctor‘s co-conspirator in the definition of Contract Lifecycle Management (CLM) went on a rant about the use of upstream and downstream without a paddle in contract management. In his Friday rant, the maverick claimed that if you put supplier management in the upstream bucket, you’ve violated the whole naming convention and that upstream can have a time dimension to it and represent earlier processes, but it can also have a supply chain connotation and represent multiple tiers farther upstream in the inbound supply chain – working back to raw commodities. So, it’s confusing in that regard in terms of time vs. space. However, the maverick‘s biggest gripe seems to be it puts the signature of the contract artifact as the singularity of the procurement universe – sort of like using B.C. and A.D. to define world history to non-Christians.

So what? We need a way to measure time and a milestone against with to measure progress.

As humans, we don’t know exactly when we first evolved (or, if you follow a religion based on a form of creationism, were created), so we can’t choose that date as a reference point for a precise timeline. We barely have decent records back to 0 AD, and if we go back more than a few hundred years beyond that, we don’t really have enough to establish a good date system. So the date chosen is just as good as any other date during that period.

Similarly, if you look at the full contract lifecycle, just when does the project start? When is the first analysis or opportunity identification performed that leads into the business case. Hard to say. We know the date a sourcing project is approved, but just like 0 AD, before that gets a bit fuzzy, but there could still have been significant events that led to approval which are really part of the Procurement process and which should not be overlooked just because a date can’t be fixed. Similarly. When does it end? The date the contract officially finishes? The date the post mortem is done? The date a new contract is signed? The date the switchover actually occurs to a new supplier? The date the supplier is officially retired from organizational service? Hard to say.
So choosing the date of signing as a reference point is a logical choice for dividing up the process and English commonly uses the same word to mean different things in different contexts so there’s no reason it shouldn’t be clear when someone is talking about upstream in the contract/category management process and upstream in the supply chain. (After all, we live with sourcing and sourcing in Procurement is much different than sourcing in HR.)

In other words, the definitions make sense and since they are now commonly accepted, let’s not bicker about how they are defined but about how some providers and analysts tend to misuse them by trying to fix-point activities that actually need to occur throughout the process, like category management, supplier management, compliance management, and risk management. Use upstream and downstream to indicate when particular activities in a process should occur, not to categorize processes that exist simultaneously with the contract lifecycle, and that build off of the primary artifact, the contract, in new and interesting ways (when done right).

Not everything fits in a one or two dimensional model, and we need to be prepared to accept the true complexity of the situation. That’s why many tenders these days are complex and why organizations that don’t have spend analysis can’t identify the inherent complexity and why organizations that don’t have strategic sourcing decision optimization can’t adequately deal with the complexity. Just like the world is not flat, neither is the sourcing model or the necessary execution process that follows. A spreadsheet won’t cut it and neither will point-in-time processes. However, we still need fixed points in time to measure against (forward and back), and at least the date a contract is signed is a point in time everyone across all departments in the organization can agree on.

Data Analytics is Big Money, But

Last Friday, Palantir raised $450 Million in a new round of funding, at a valuation of almost $20 Billion, making it the fourth most valued “startup” to date with almost 1 Billion in funding including Founders Fund, Tiger Global Management, and In-Q-Tel, the CIA’s investment arm.

But it’s not just big data that generates big money (for the software provider) and big value (for the organization that has [access to] it). It’s big analytic power. And, as SI has indicated repeatedly, the data set doesn’t necessarily need to be that big to identify considerable savings opportunities.

A million transactions might not be more insightful than 1,200 transactions. If the transactions are for 10 different products from 10 different suppliers over the course of the year, a single summary transaction for each month for each supplier-product pair that summarizes the lowest price paid, the average price paid, the highest price paid, and the total paid is just as informative from a spend analysis perspective. Given this data, the buyer can see, for each product, how much money it would have saved if it always bought at the lowest price, how the price is trending, and how much could be saved by using a contract to lock the product in at a price less than the current market price. The other 998,800 transactions are not needed.

In other words while you need large spend cubes to find value opportunities, which will often depend on redefining categories, redefining shipping lanes, redefining delivery schedules, and so on, you can often get away with cubes that are at most, hundreds of thousands of well defined (summary) transactions (for the right time period). Millions of transactions are typically not necessary, and that’s why you can do enterprise wide spend analysis on a laptop with the right spend analysis tool (like as you can generally define a transaction set of just a few million transactions that covers the last three years and fits in memory!

Tips to Advance Your Procurement Career

Earlier this month, over on Spend Matters, the prophet coined an article on 5 insider tips to make more money in Procurement which is quite interesting, and in the doctor‘s view, mostly on the money. According to the prophet, if you want to earn more money, you should:

  • Choose Your School Wisely
  • Take Advantage of Scholarship Programs
  • Become a Hacker
  • Start Out in Consulting
  • Learn the Language

the doctor certainly agrees whole-heartedly with 1, 3, and 5. 2 and 4 are good suggestions, but they are not necessarily always the right move. In order to explain, we’ll first discuss the tips that are always relevant, with a few slight modifications.

Choose Your Education Wisely

Maybe Sales and Marketing, which are led by MBAs*, which can be earned by any dummy while squatting on the toilet, only care about the name of the school (because it’s not like they actually learned anything in school anyway), but smart Procurement professionals — who realize that you have to analyze spend; do in-depth Kraljic, SWOT, and Kaplan & Norton analyses; develop detailed category strategies; build sophisticated cost (and optimization) models; negotiate detailed, risk mitigating, contracts with exit strategies, and execute. This requires a lot of knowledge, skill, and experience. And while experience cannot be taught, a good mentor will not be able to guide you if you do not have the skill, and foundational knowledge, to understand his teachings. It does not matter how good your sourcing sensei is if you are not ready to learn the lessons she is prepared to teach. So choose the right program in school, and the right continuing education or professional association after school as learning is a life-long process in Procurement.

Expand Your TQ

A hacker is someone who can do a heck of a lot more than use Access or a data mining tool. A heck of a lot more. However, in order to excel in Procurement, a Procurement professional needs to know a lot more than how to use Microsoft Office. Learn how to access public market data sources, how to use use open source or share ware data analysis tools to analyze data sets, how to apply basic statistics to a population to identify a distribution and appropriate pricing or sales trend algorithm, and get any hands on experience you can with best-of-breed operations research or Procurement platforms.

Learn the Lingo

It’s critical to not only learn the language of Procurement, but also the language of Finance. In order to be taken seriously by the C-Suite, you have to speak the language they understand, and that is Finance. Being able to talk in their language, which includes measurements like ROI, ROIC, RONA (which does not refer to the home-improvement chain), etc. gets their attention. It’s not just the language, because most multi-nationals use English as the official language, it’s the lingo.

Now onto the tips that are normally good, but sometimes iffy.

Take Advantage of Scholarship Programs

You want to search for these, but not all scholarships are beneficial. If they just give you cash, that’s great. If they connect you to a good network, that’s great. But if they require you to do an internship with a laggard company or, even worse, agree to work with that laggard company for two years upon graduation, that might not be the best deal.

Start Out in Consulting

the prophet thinks this is a good idea because a big-5 background or strategy firm background gives you a pedigree [that] can help with compensation. This is true, but great results can also get you a great compensation package. Maybe you’ll have to change jobs to get it, but, in Procurement, money talks, and the more you save, the more it talks. So, when deciding on your first job, take the job that will present you with the greatest opportunity to make a mark for yourself, which is not necessarily the job with the biggest name firm. But if all opportunities are equal, then it makes sense to go with the pedigree.

the doctor has deep disdain for many MBA programs, and many executive MBA programs in particular, that promise a lot but, in actuality, deliver very little. In other words, the doctor believes that educational program investigations should not be limited to, the now defunct, Trump University. (He understands why though. Trump is now a prominent figure, so it’s no surprise why the investigations are focused on an institution that he is connected with.)

The Ten Commandments of Procurement, Atheist Style

Earlier this month, on Canada Day, while LOLCat was proactively learning the pledge of allegiance (which LOLCat will need when Canadians re-elect Harper), Mr. Smith asked what were The Ten Commandments of Procurement that you adhered to that were absolutely, unarguably, true under all conditions.

To get your creative juices flowing, a few weeks ago, Sourcing Innovation gave you the Ten Commandments of Procurement, Christian Style. And in case that wasn’t enough, two weeks ago SI gave you the Ten Commandments, err, Precepts of Procurement, Buddhist Style, and then last week, we gave you the Six Commandments, err, Philosophies, of Procurement, Hindu Style. But we’re not stopping there — not everyone is religious. So today’s post is for the atheists as we give you the ten commandments of Procurement, atheist style!

1. Be open-minded and be willing to alter your processes and practices when better ones are presented to you.

Even if you are using the best practice that is out there, that is only the best practice that is out there today. A better way might be discovered tomorrow. A good professional recognizes when something better comes along and strives to make use of it.

2. Strive to understand what the market situation really is, not what you want it to be.

Even if the market situation went unchanged for ten years, that doesn’t mean it hasn’t changed in the last few days. Consider the recent avian bird flu crisis. Like the dairy market between 2000 and 2006, the price of eggs stayed within a narrow band for years years until the recent avian flu crisis.

3.Supply Chain Mapping is the most reliable way of understanding your supply chain.

Not spend analysis, not (internal) customer surveys, not best guesses, mapping. To truly understand your supply chain you have to sit down and map it. Nothing except a complete raw-material source to finished product sink map for your primary product lines will allow you to get a full picture of the complexity of your supply chain.

4. Every category manager has the right to be in control of their spend.

You might be responsible for sourcing the category, but it is not your budget — it is Engineering, Marketing, HR, or Legal’s, etc. Not only is the budget owner a key member of the cross-functional team, but should have the final say on event design and final award.

5. A rigid set of rules is not necessary to be successful at Procurement. Only a desire to do the right thing is.

Procurement success is not driven by process, it is driven by passion. A passion to be the best Procurement professional you can be.

6. Every decision has consequences and you must be prepared to accept them.

There are tradeoffs between every option presented to you as a Procurement professional. Costs can only be reduced to a certain point before quality or reliability are affected. Outsourcing a function may save money, but could cost the organization valuable skill and knowledge in the long term.

7. Treat your customers and suppliers as you want them to treat you.

Just because Procurement is the Rodney Dangerfield of the corporate functions, that doesn’t mean it should be nonchalant in its dealings with the other functions. It should treat them the say way it wants to be treated.

8. Sustainability is not just important to corporate sustainability, but to our sustainability. We should leave the planet as good as we found it.

Environmental responsibility is not just a means to insure corporate sustainability by increasing the brand reputation, not just a means of insuring a continuous supply of raw materials by switching to renewable resources, and not just a means of insuring a continuous supply of fresh water and energy for production by going lean and using renewable energy, but it is a way of insuring our future and insuring that those that come after us will not only have a job they can love and look forward to, but a life they can love and look forward to. And the happiest worker is the most productive worker.

9. There is no one right way to source.

Every category is different, every product is different, every supplier is different, every market is different, and every professional is different. There is no one right way. There are conditions that make certain types of sourcing methodologies more appropriate or easier, but there is no hard and fast rule and it is up to me to work with the cross-functional way to identify a way that works best for us.

10. The ultimate goal is that, after, a sourcing event, the overall situation is better for everyone than before the event occurred.

You’re not just there to source a product or a service, but a solution to whatever problem your (internal) customer is having. Savings is good, cost avoidance is better, a new revenue source is better still, but solving their problem is what is truly priceless.

Contract Lifecycle Management V: Do You Know What The Must-Haves Are?

In Part I of this series, we argued that CLM, short for Contract Lifecycle Management, while arguably one of the most tedious acronyms in the Supply Management space, is also one of the most important. This is because, as summarized in Part III of this series, it overlaps S2C, P2P, and, as a result, S2S/S2P as well as intersecting with risk management, performance management, change management, and supplier (relationship) management. In other words, CLM touches almost every aspect of Supply Management and is taking a central place in your Supply Management organization.

However, up until now, CLM has not been well defined and the best definition, which could arguably be that given by Gartner (see Part I), has been, more or less useless, because you already know it’s a good process supported by a great platform. What you need to know is what that platform is as vendors, analysts, peers, and even professional organizations don’t, or won’t, tell you. That’s why, in a landmark effort, Sourcing Innovation and Spend Matters, as the two leading independent authorities on Supply Management, led by the doctor, the maverick, and the prophet, have joined forces to define, publicly and openly, the core Supply Management platforms, starting with CLM.

In our last post in this series we discussed that neither sourcing nor procurement were enough because Contract Management, the core platform powering CLM, is not (traditional) Sourcing, which is the process of identifying a source of supply. Nor is it (traditional) Procurement, which is the process of acquiring products and services that have, in many cases, already been contracted for. Contract Management is the end-to-end negotiation, execution, and implementation of contracts that also supports performance, compliance, relationship management, and, when it happens, dispute management and corrective actions. And as a result, it requires a platform with the right mix of core and supporting capabilities. In today’s post we’ll list the core capabilities and discuss a couple of them, but for the full picture, you’ll need to check out our in-depth piece on Core Contract Management over on Spend Matters Pro [membership required].

The following capabilities are core:

    • Contract Library (& Document Archival)

    • Template Management

    • Key Contractual Data Element Search & Discovery

    • Tamper Protection for Signed Documents

    • Security

    • Amendment Control / Change Management

    • Audit Trails

    • (XML) Data Import & Export

    • Contract / Document Authoring / Versioning

    • Obligation Management

    • Alerts

    • Reporting

    • Expiry & Renewal Management

Most of these you probably expect, and for some of these you probably have some idea why, but a few of these are probably unexpected, including expiry management and obligation management. We’ll discuss these, but refer you to our in-depth piece on Core Contract Management over on Spend Matters Pro [membership required] for coverage of the rest. (However, the must-have, should-have, and nice-to-have function lists will be made, and remain, public as they are the common measuring stick that both Spend Matters and Sourcing Innovation will be reviewing and measuring vendors against going forward.)

Most people overlook the importance of contract expiry and renewal management because they figure that once a contract is over, it’s over, and no longer needs to be managed. That’s only the case if the contract is truly over, there are no future obligations, and, most importantly, the contract doesn’t automatically renew unless explicitly cancelled in writing. Without a good contract management system with auto-renew detection and expiry management, many organizations suffer evergreen contracts that lock them into above-market rates for outdated and inferior products because they don’t realize an evergreen contract exists until after the final date for termination has passed and they are locked in for another one to three years. Maybe your buyer got tired of constantly negotiating the office supplies contract and believed that getting 20% off of MSRP was a smashing success and locked in an auto-renew clause that said, if not cancelled in writing by the buying organization within 30 days of contract expiry, the contract would auto-renew for another year, under the same terms and conditions, at the same rates. But if the buyer, who didn’t do his homework very well, didn’t realize that the MSRP rates were 40% more than the vendor’s cost, then the vendor is, of course, going to let this contract coast forever (especially since the organization is providing double his typical profit margin as compared to his big GPO clients that negotiated 30% off MSRP), and the organization will likely be automatically locked into a renewal that is costing it an extra 10% on office supplies.

Similarly, most buyers or category owners often feel that obligations are the responsibility of the supplier, so obligation management isn’t that important. But even if everything is the responsibility of the supplier under the contract, it is still up to the buyer to insure that the supplier meets their obligations. Specifically, if there are insurance requirements then the buyer has to make sure the right policies are in force (or risk opening his organization up to multi-million dollar lawsuits). If there are compliance requirements, the buyer has to make sure that the right tests, reviews, or approvals are in place before the products are shipped or sold (or risks goods being delayed, seized, or even destroyed at the border). And if the organization needs to acquire, or renew, licenses to meet its end of the contract, it has to make sure it does so at the right time (or risk losing access to critical IP or software tools).

And even though we only called out renewal and obligation management, each and every other core capability listed above is just as critical and to understand why, and what the platform has to support with respect to that core capability, check out
Core Contract Management over on Spend Matters Pro [membership required], Part V of the doctor, the maverick, and the prophet‘s landmark ten-part series fully defining CLM.