Daily Archives: October 20, 2016

How Do We Accelerate the Adoption of Optimization and Analytics? Part II

In Part I, we began by noting that every organization that adopts Strategic Sourcing saves time, money, and reputation but that any organization that adopts Advanced Sourcing processes and platforms saves more. A lot more. Only advanced sourcing, based on analytics and optimization, saves an organization an average of 10%+ year after year after year, even when traditional sourcing methods fail.

We also noted that even though a tremendous saving opportunity exists, the adoption of modern analytics platforms and optimization-backed sourcing platforms is still minimal, even though modern platforms, unlike their predecessors, are easy to use (and can be used by even the most junior of buyers), suitable for all purchases, and ten times as affordable as they used to be (which means that the ROI they can deliver can be up to 100X their cost). This caused us to ask why they still aren’t being adopted.

We noted that leading minds, including the prophet, have speculated that the reason(s) may include perceived complexity, lack of visualization, lack of integration, lack of guidance, and lack of collaboration, but pointed out that modern systems addressed all of this and this means that the commonly perceived reasons for lack of adoption aren’t the real reason.

So what’s the real reason? Well, as far as the doctor can tell, either people aren’t getting the message, don’t believe the message, or still inherently fear the platform despite the message. The sad fact is all of these are true to some extent.

People aren’t getting the message.

First of all, there are only six providers that offer strategic-sourcing decision optimization (SSDO), but most of these providers still offer SSDO as a stand-alone module, with only two platforms being optimization backed sourcing platform (that makes the optimization and analytics capability available across the platform, where it can be used to score and compare RFX responses and select auction winners in real time against complex cost models laden with constraints). There is only so much education, and marketing, two providers can do.

In comparison, there are dozens of sourcing platform providers that don’t offer optimization, and don’t profit by focussing on the optimization (or even the analytics) message, and, as such, don’t preach those messages. But that’s not the problem. The providers that are threatened by optimization tend to promote the myths and do everything they can to discredit these providers.

People don’t believe the message.

Many first generation providers greatly over-promised and under-delivered with respect to their optimization platforms and, as the saying goes, once bitten twice shy. When your organization spent high six, or sometimes seven, figures and got a solution only the vendor could use, and only successfully on the categories they understood, your return was limited as you were only able to get big savings on a few categories, and could only revisit those categories every few years. As a result, given that these providers promised better usability, flexibility, and ease of use for years, and never delivered, many people don’t believe that modern platforms are years ahead and useable by even junior buyers.

People fear the message.

And different people fear it for different reasons, but they generally fall into two camps. The camp that fears they can’t handle it, or the camp that fears the organization can’t handle the results it will deliver.

They can’t handle it.

They fear that they will have to be highly technical, capable of understanding advanced models, and, most importantly, have a solid command of advanced mathematics. When you consider that, with declining education, only a small percentage of American adults are “proficient” at math (as the US ranked 21st out of of 23 first world countries in numeracy in an OECD survey in 2013), and optimization is based on some of the most complex math there is, the fear is understandable, even though its unfounded as modern platforms hide the complex math and all users have to do is make sure all of the costs, constraints, and associated data elements are entered.

The organization can’t handle the results.

Many fear that if the solutions deliver and they identify savings of 10% or more on a category they are supposed to be experts in, their competency will be called into question and the whole existence of the Procurement organization as it now stands reviewed, because if they were good at their jobs, why were they overspending by so much. This is a valid fear if the executives are idiots, but a smart executive should realize that no human can analyze millions of scenarios in a few hours; that while costs rise in some categories, they fall in others; and that when entire categories can be put out to bid at once, economies of scale in both production and transportation materialize and their interplay can achieve savings that would not otherwise be realizable.

So what do you we do?

Attack the bullshit.

First of all, since the education isn’t working, let’s counter the false claims made by the providers without optimization-backed sourcing platforms. Demonstrate that their claims are baseless. Even though the laggards will be swayed, the leaders and followers will come around.

Make it personal.

Stop selling and start enabling. Thanks to the lies, damn lies, and false promises of early vendors, the buyers that were burned no longer believe vendors. Providers, even direct competitors, of these platforms have to create communities where their customers can engage with their peers and discuss the truths of the platforms they have adopted, warts and all. A dedicated buyer will gladly look past a few warts if it means better job performance (and a bigger bonus) at the end of the day.

Educate the C-Suite.

Help potential buyers educate the C-Suite that the system will deliver better results ONLY in the hand of a true professional, that a significant part of the savings come from the economies of scale and new supply chain models enabled by the software, that optimization can only save so much when applied tactically to the status quo (or, more importantly, like an auction will only generate savings once if not properly applied). Make sure they understand that the current situation is not the result of poor performance by the buyer, but the organization providing the buyer with poor tools.

Any differing thoughts?