Monthly Archives: May 2016

Procurement Is Dead! Long Live Procurement! Part II

Mr. Smith is right. Procurement is dead. It was doomed, entombed, marooned on a desert island, and passed away peacefully in the night long after everyone had forgotten about it. It’s dead and buried. And you should thankful that the Romans closed the door on the Egyptian Empire’s burial chamber or you would have been buried with it.

Just like the industrial revolution laid waste to the armorer, blacksmith, glassblower, and dozens of other occupations (and just like Video Killed the Radio Star), the internet has killed the purchaser. (May he rest in peace with the radio star.)

Let’s face it. Why would a modern organization need a purchaser anymore? What did a purchaser do?

He could find the one product you needed in a wall of catalogs in a minute and have it expedited to you the next day.

But with Amazon for Business, Alibaba, and about a dozen vendors offering integrated and federated catalog search capability that will allow the organization to integrate the third party catalogs of all of their suppliers into a single interface, who needs a paper catalog? Who needs to even remember the supplier or the name of the product? Today’s catalogues are heavily laden with meta-data with full search capability and anyone, anywhere, and at any time can use them to find exactly what they need, order it, and get it. No catalog expert needed.

Create and fax 3 copies of the RFP to the top 3 organizational suppliers in that category and ensure there were timely responses.

Today’s RFX programs, which support not only RFX templates for supplier information, proposals, and bids, but also support mail-merge template capability for creation and electronic distribution, e-Fax, and portal access, allow a buyer to send the same RFP to 30 potential suppliers in the same amount of time as it takes to send to 3. Plus, since everything is online, all of the data is automatically collected into the same online spreadsheet for instant apples-to-apples comparison, and if offline is needed, formatted spreadsheet output is instantly available. No data (re) entry required.

He could shave 5% off a hard-nosed supplier’s bid with hard-nosed negotiating tactics.

With today’s supply market intelligence, cost modelling applications, and in-depth (predictive) analytics applications that can plot trends across different component and raw material factors across regions and timelines, even a junior buyer has a good idea of how much a product from a supplier should cost and knows when the supplier is quoting a 15% margin (when the industry standard is 10%) and when a simple explanation of facts will be enough to convince a supplier to get in line. Plus, with e-Auctions, open book costing, process analysis, and joint inventory and innovation initiatives, costs can be reduced without any negotiation at all. Who needs a hard-nosed negotiator who only knows the carrot-and-stick method (and always eats the carrot before going into the negotiation)?

Procurement is Dead!

To be continued …

While the Masses descend on ISM, the Masters will have the 50/50 in their Sights.

Today sees the beginning of the annual conference of the 101 year old Institute of Supply Management and the convergence of thousands of professionals upon Indianapolis to take place in the annual four-day revelry of the purchasing profession in the United State of America.

Recognizing that their audience is often more junior buyers than Directors and CPOs, this year the ISM has organized sessions into meaningful tracks to try and help the various purchasing team members understand the basics they need to do their jobs (as few people get any formal education in Supply Management before being thrust into a career, and training budgets are still slim to none in many organizations), with a focus on:

  • Dos and Don’ts
  • Direct and Indirect
  • People & Tools
  • Risk & Rewards

This is a great director for the ISM to go, as today’s buyers need all the education they can get. Unfortunately, there’s only so much that can be covered in a short talk on the critical subject matter a buyer needs to learn in depth to do her job efficiently and effectively (and run the Procurement Value Engine) and less still that can be absorbed, but we should at least applaud the effort of the ISM to make this event worthwhile for their average attendee (and possibly give her some fodder to go back and fight for an actual training budget).

Of course, as usual, the doctor won’t be there as the ISM conference, and the dozens and dozens of vendors with the big marketing budgets that converge upon it, really only represents the average state of Procurement today. As leaders of today and tomorrow, we are interested in the state of the art, what comes next, and what we have to learn — and do — to prepare for it to take our capabilities to the next level because, as we know it, Procurement is Dead and if we don’t redefine our job, and our capability, we will be buried with it.

As a result, in our niche, we don’t need to be bombarded with a dozen, almost equal, Source to Pay platform demonstrations (because we already know what the average platform does and minor UI differences and workflow tweaks don’t add much value) or last decade’s SIM solutions — we need to know which vendors are adding innovative capabilities like auto-correct and auto-suggest to m-way match to eliminate 90% of the “exceptions” that can be automatically handled, data analytics to let us do predictive trending and take advantage of prescriptive (expert-guided) strategies to maximize the value from each sourcing event, and modern SRM platforms that contain development and innovation management capabilities to extract value where the price is already as low as it can go with current materials, production processes, and supply chain designs.

That’s why we will be waiting with anxious breadth for the Spend Matters 50/50 list to find out who the 50 vendors to know are, and, just as importantly, who the 50 vendors to watch are. We need the next advance, and to get ahead of our competitors in tight markets without a significant increase in budget or support, we need it first. And where you are going to find that innovation is in the vendors on this list, and, surprisingly enough, not just the vendors in the “watch” list — some of the bigger vendors in the “know” list, having acquired some smaller companies and top innovation talent, have let their talent loose and there are some amazing innovations in the pipe this year — just not necessarily what, where, and from whom you’d expect.

While the doctor was consulted last year, this year the doctor was heavily involved in the discussion, including the final cut, and can honestly say that not only does this list represents the best cross-section of vendors in the global market, but it will surprise you. And you will be happy it did. And, better yet, there will be a continuation of the deep coverage of all of the vendors on SM (which will include joint coverage by the doctor, the prophet, and the maverick where it makes sense) and on the Sourcing and Complex Procurement vendors here on SI*.

Start the countdown!

* For the most part, SI will not cover the workforce, trade finance, or services providers in depth as SI will remain true to its core focus (which has kept you here for 10 years) on best practices and processes, technology, education, and topics that no one else covers in the Strategic Sourcing Execution Lifecycle (registration required). [However, this still leaves a LOT of vendors.]

Some Good Reading For Your Flight:

registration required for most

On Strategic Sourcing:
The Strategic Sourcing Execution Lifecycle e-book, authored by the doctor, sponsored by Trade Extensions

… and Adoption:
Higher Adoption is Where True Value Lies, authored by the doctor, sponsored by Keelvar

On Procurement Value:
The Procurement Value Engine, authored by the doctor and the procurement dynamo, sponsored by Pool4Tool

… and Invoice Automation:
An End to End Invoice Automation Framework, authored by the doctor, sponsored by Nipendo

On Spend Analysis and Visibility
Spend Visibility: An Implementation Guide, authored by the doctor and Bernard Gunther, sponsored by Opera Solutions

On Strategic Sourcing Decision Optimization
Optimization Backed Sourcing Platform … Or Bust, authored by the doctor

On Supply Chain Risk
Playing With Fire: Hidden Risks in Your Supply Chain, authored by the doctor, sponsored by Ecovadis

On Benchmarks and Trend Analysis:
The Dangers of Benchmarking, authored by the doctor, sponsored by Trade Extensions

On Overpayment Recovery:
Taking Capital Recovery to the Next Level, authored by the doctor, sponsored by Lavante

On Your Supply Management Journey:
Taking the First Step on Your Next Level Supply Management Journey, authored by the doctor, sponsored by BravoSolution

Procurement Is Dead! Long Live Procurement! Part I

Mr. Smith is right. Procurement, which was very recently Doomed! Entombed! and Marooned! on a desert island is dead. While it fought valiantly to survive, in the end, it passed away peacefully in the night after everyone stopped caring.

Your career is over. Just be thankful the Romans sealed up the burial chamber of the Egyptian empire and you will not be buried too.

Your ability to remember which catalog among the 200 on the wall contains the part that is needed, where it is, and what section it is in; instantly locate it, and place the order as soon as the request comes in has already been forgotten. With Amazon for Business (in America) and Alibaba (in China), anyone can instantly find the part they need and place an order for next day delivery.

Your ability to quickly create an RFP template, print out 3 copies, customize an opening for the top three suppliers the organization will typically do business with, and get them faxed out (and followed up on with a phone call) faster than most people can figure out how to copy a single page on the over-complicated copy machine is no longer appreciated. With a few clicks of the mouse, anyone can use a modern freemium RFP tool with integrated mail merge and e-Fax to create an RFP, send it to a dozen people, and print out a call list for the intern to follow up on. 3-bids-and-a-buy is reserved for tail-spend spot buys that would normally be done off-the-cuff with the first vendor that comes to mind.

Your ability to step into a negotiation with a contract manufacturer and, after hours and aggravating hours of hard-nosed carrot-less stick negotiation come back with an offer 5% lower than the Engineering team was expecting is remembered, but now that detailed cost models demonstrate that you are still overspending by 10% (and that the supplier always inflates their offer knowing you’ll be happy with a 5% reduction), even a junior negotiator armed with cost models and the facts can get the same result (and they only get half of your salary).

Your ability to manually process the mountain of requisitions, purchase orders, invoices, and goods receipts that come in everyday in a pseudo-timely manner, when everyone else fears to even enter the room, has been antiquated to the history museum as cloud-based m-way match systems can not only process 100 times the paperwork in near real time, but identify the errors in 90% of the invoices that come in with errors (which can be 15% of invoices in an average organization). Properly configured, this leaves a clerk only 2% of invoices (with more than minor errors) to be manually processed, and even the most junior of clerks can do this.

The reality is this: just like the industrial revolution put an end to the armorer, blacksmith, glassblower and other medieval occupations, the internet has officially put an end to the Purchaser.

Procurement is Dead!

To be continued …