Monthly Archives: October 2017

Sanguine Strategic Sourcing

Today’s guest post is from Jennifer Ulrich, an Associate Director and Category Planning Subject Matter Expert at Source One Management Services as well as a contributing author of Wiley & Sons “Managing Indirect Spend: Enhancing Profitability”.

It’s not just vampires that find themselves looking for blood. Healthcare procurement professionals also depend on a consistent stream of the stuff, though they’d define stakeholders quite differently than Dracula. All purchasing is important work, but they can honestly say that their sourcing operations are a matter of life and death. Imagine learning that you couldn’t receive a transfusion because your medical center couldn’t locate a reliable supplier, or failed to plan for a disruption in its supply chain. It’s a terrifying thought.

Human blood ($150 – $180 a pint!) is one of countless commodities Source One’s consultants and I have helped our clients purchase more efficiently. For one organization in particular, it amounted to eight million dollars of total spend. You might think that sourcing a product out of a horror film would present especially grim or bizarre challenges, but the initiative proved straightforward. It essentially came down to a question of vendor consolidation, a question that’s always essential in procurement: Would our client benefit more from a single, or multi-source strategy?

Whether it’s blood or Butterfingers you’re buying, your answer to this question will largely shape your strategy. It’s important to consider the potential drawbacks and benefits of both approaches.

The recent rash of natural disasters have not only underlined the importance of well-supplied healthcare providers, but they’ve also reminded procurement teams around the globe how important it is to assess and mitigate risk across the supply chain. When you’re dealing with a commodity as valuable as blood, the smallest disruption can have deadly ramifications. In theory, a multi-source strategy reduces the risk of shortages by broadening the supply base. Medical organizations that draw blood from a number of suppliers are unlikely to be completely drained if one should come up short.

A multi-source solution also presents the potential benefit of supplier competition. Leveraging this could mean a more agreeable arrangement or sustainable strategy. Though your average individual might know of just one blood supplier (you know the one), the field is actually saturated with a number of emerging regional businesses. Granted a seat at the table, they can drive more competitive pricing while partnering with one another to collectively manage volume concerns.

Sourcing from more than one supplier does not, however, eliminate risk or produce value in every instance. In fact, an organization might find that the strain and uncertainty of managing multiple supplier relationships outweighs its benefit. Consistent communication is essential for maintaining an amicable, respectful, and fruitful relationship with any provider. It’s obviously far easier to ensure open lines of dialogue with a single vendor than with a large group. The right SRM expert can make any arrangement work, but it’s often preferable to consolidate your supplier base for more personalization and collaboration.

In this particular situation, our client found that one trusted supplier could most effectively meet their specifications. With our help, they learned that a close relationship with this provider presented considerable value incentives. In addition to a tiered discount structure, they offered risk management solutions in the form of comprehensive training programs. By educating end users on the proper procedures for transporting, handling, and administering blood they helped foster a sense of teamwork while greatly reducing the chance of lost or wasted product.

There’s no O negative approach when it comes to assessing the market. One company’s life-saving cure could send another into convulsions. That being said, whatever your industry, whatever size your supply base, the same set of principles apply for effectively maintaining relationships and encouraging compliance. The most successful procurement professionals perform a transfusion of sorts. They supplement the foundational techniques of good sourcing with a healthy dose of innovation to determine the appropriate treatment.

In a future post we’ll dissect single and multi-source strategies and discuss which situations favor which approach. Happy Halloween!

Thanks, Jennifer!

The Procure to Pay User Experience Should NOT be Overlooked!

The history of enterprise software systems is fraught with implementation failures. This is especially true in the ERP and MRP space, which have contributed to some of the biggest supply chain failures in history (including Hershey Foods, Adidas and Foxmeyer). But not all failures are catastrophic. The majority are just the result of (significant) project overruns in terms of time and money or the inability to deliver critical features or functions in the original system specification. And this is more common than one may think. Some estimates put the rate of project overruns in IT as high as 85%. That’s problematic.

Why are there so many failures? The reasons are many. Some are the result of poor change management; others are the result of the selection of inappropriate process automation for the company; and still more are the result of limited or low-quality information. If one goes through the list of possible reasons, we see there is one commonality across the majority of failures: the user experience. Poor change management leaves users confused. Inappropriate process selection frustrates users as it increases time and effort (rather than decreasing it), and low-quality information makes users question why they are migrating to a new system at all. (And when significant system features or functions fail to be implemented at all, that’s the worst user experience.)

That’s why the user experience (UX) is important, and why the doctor has been writing tomes on it this year, starting with a number of multi-part series co-authored with the prophet over on Spend Matters on:

What Makes a Good UX? Part I
What Makes a Good UX? Part II “Smart Systems”
What Makes a Good UX? Part III “Mission Control Dashboards”

The UX One Should Expect from Best-in-Class e-Sourcing, Part I
The UX One Should Expect from Best-in-Class e-Sourcing, Part II

The UIX One Should Expect from Best-In-Class Auctions, Part I
The UIX One Should Expect from Best-In-Class Auctions, Part II

The UX One Should Expect from Best-In-Class Optimization … Part I
The UX One Should Expect from Best-In-Class Optimization … Part II
The UX One Should Expect from Best-In-Class Optimization … Part III
The UX One Should Expect from Best-In-Class Optimization … Part IV

The UX One Should Expect from Best-in-Class Spend Analysis … Part I
The UX One Should Expect from Best-in-Class Spend Analysis … Part II
The UX One Should Expect from Best-in-Class Spend Analysis … Part III
The UX One Should Expect from Best-in-Class Spend Analysis … Part IV
The UX One Should Expect from Best-in-Class Spend Analysis … Part V

… with SRM & CLM on the way …

But that is just the beginning. Now that we have fairly adequately covered the core Sourcing technologies, we need to cover P2P, and that, as we all know, is the domain of the revolutionary. So, starting last week, the doctor teamed up with the revolutionary and, in the months to come, we are going to bring you deep, deep insight into Procure-to-Pay, both from a UX and a FX viewpoint so that at the end of the day you have deep insight into not only what P2P has to do, but how it should do it.

Our first instalment of “The Procure-to-Pay User Experience” premiered last Thursday over on Spend Matters Pro (membership required), and more will be coming.

Stay tuned!

None of Us is as Dumb as All of Us! Unless, Of Course, You Include AI!

the doctor sees a lot of unsolicited pitches hit his inbox each and every day. Since SI does not cover press releases (since he just does not give a damn about your meaningless marketing sound-bites which do little to nothing to advanced education and technology) he ignores most of them. But this week he saw one of the most ridiculous headlines ever:

Can AI Harness the World’s 2 Billion Social Media Influencers?

Ignoring the fact that that the headline is factually incorrect (there are 2 Billion Users, NOT Influencers), this is one of the dumbest questions ever posed and anyone who understood anything about the state of AI today would not even want to ask it!

Generally, if you are going to train AI, you want to train AI on expertise. And where’s the last space you’d expect to find expertise? That’s right! Social Media.

But that’s just the tip of the why-you-should-not-do-this iceberg! If you include everyone, you not only include everyone of above average intelligence, but everyone of below average intelligence by very definition. So while you will have a few geniuses, you will also have morons, imbeciles, and possibly even idiots (as per the original Binet IQ scale). Do you really want them training your AI?

Moreover, what do people share on Social Media? Their most brilliant ideas? Well developed arguments? Philosophical contributions? Wisdom? Profound insights? Or pictures. Comments on politics. Viewpoints on pop culture. Their thoughts of the moment. Complaints. Rants. Digs. Manifestos. Insults. Self Praise. And so on. And most of it in blurbs, not sentences, and definitely not paragraphs. And in addition to the onslaught of bad grammar, the rate of spelling errors is atrocious.

Is this what you want to train an AI on? Really? You really want an AI that is going to make decisions like an angry dumb, self-obsessed, neurotic, troll with self-esteem issues making your decisions? And that’s likely a best-case scenario.

the doctor doesn’t know about you, but if he’s going to trust an AI, he wants that AI trained by experts for specific tasks, with performance analyzed and tweaked by other experts, since, as we know, there is no such thing as artificial intelligence, since no algorithm is intelligent, no matter how advanced, and what we really have are advanced automated reasoning algorithms. But if those algorithms were trained by the impaired, those algorithms are the last algorithms he would ever want to use. And those algorithms should NOT be on your list either.

The implications of Crying Thief!

Today’s guest post is from Tony Bridger of Assymetrix Consulting. Got a spending, process, or change management problem? Tony has a solution.

There is an old Nigerian Proverb that runs a little like: “One cry of “Thief!” and the whole marketplace is on the lookout.

However, crying “thief” has serious implications for many business, particularly those public organisations with shareholders who would quickly perceive financial crime as a systemic business process failure.     It is easier for management teams to internally manage fraud than to prosecute. Detection of large fraud is also an admission that both controls and deterrence are failing.   In a recent article, It’s Hard to Find Fraud in Big Spend Stacks …   the advent of AI could provide that vital detection of internal fraud.   It’s a sophisticated solution.

Whilst we are on the subject of proverbs, a key element in fraud management is “prevention is better than cure”. Companies that detect fraud have clearly not created the cultural norms that others take for granted that deter staff from committing fraud.   There are many cultural and technological capabilities that can reduce the incidence of fraudulent activity that are well within the grasp of many businesses.   Deterrence – or risk of detection is a critical cultural message.

With some careful risk analysis, it is quite easy to map out where company fraud is likely to originate. Finance, Procurement and staff expenses are usually the key internal risk areas.   Culturally, one of the first steps is to ensure that there is adequate separation of duties.   In finance, this is simply ensuring that a finance staff member does not have the capacity to both create a supplier vendor master entry – and pay an invoice.   This is a system administration role setting. The creation of “dummy vendors” and subsequent payments is often down to this simple failure.   Making all data elements (Business Number, address, contact details) as mandatory data items also reinforces the message on data integrity.   Many mid to high end systems will also allow user audit trail analysis if required. This simply captures the user-id of the employee accessing the key finance system forms.

For smaller companies, separation of duties can be an issue – but keeping a register of new supplier entries and reviewing this regularly is a key move.   In the procurement space, the person who creates the contract and then manages the winning vendor should also not be one and the same person if possible.   Again, hard to mobilize with limited staff and expertise – but a very clear signal around why is a powerful deterrent.   The idea is not to create a draconian working environment – it is simply ensuring that employees understand that this is designed to protect them – as well as the company.

Where possible, organizations should also use the power of their accounting system to the full.   Many of the low-end accounting systems have decent quality automation for transactions like staff expenses.   From experience, there are some subtle employee mindset changes generated with increased automation.   Almost all of us realize that entering data in to a system creates a record.   Once submitted, unless a request is made to vary the claim – the electronic evidence exists.   Paper can be lost, shredded or misinterpreted.

Almost all staff will recognize that these transactions can be retrieved many years later.   A very good business practice is to engage a vendor that provides duplicate invoice analysis services periodically.   This service can also detect anomalies and “odd” transactions.   A multiple repeated “same value” claim by an employee will almost certainly be found and analyzed. As many of these services are contingent based, they are quite affordable.   Regular auditing can also send clear signals on fraud risk assurance.

However, the combination of separation of duties, increased electronic transaction processing and periodic data analysis should send very clear cultural signals about what is acceptable. Staff will work out the “why?” comparatively quickly.

Organizations cannot effectively function if trust is lacking.   The notion of the cry of thief! Is far more acceptable if good management controls are in place and any subsequent fraud is detected. In effect, it’s a best effort approach to fraud prevention.

Thanks, Tony.

Why You Have to Find that Fraud in Big Spend Stacks …

We recently published a piece on how it’s hard to find fraud in big spend stacks, and it is an important one. While fraud in most organizations might be relatively small, and might be mostly controllable by the right culture, processes, and systems (but that’s a subject for a future post), it’s still going to be there, and the most common form of fraud you are not going to detect is collusion fraud.

But this can be the most costly. Let’s say Bill and Ted both have invoice approval rights in the services procurement system and can singlehandedly approve services procurements up to 20K. Let’s say Bill’s buddy Bob has a services firm and let’s say Ted’s buddy Tim also has a services firm. Let’s also say that the organization also has a great need for temporary contingent labour to man the warehouse, clean the offices, and guard the assets of the company.

Let’s say that oversight of these services is left up to the approver for verification. Let’s say that Tim routinely sends two services guards when the general policy is to have three guards on duty and that Bob typically sends only two janitors to do the work that would typically be done by four by the old services provider. Who’s to say that Tim doesn’t send two guards but bill for three? And who’s to say that Bob doesn’t send two janitors and bill for four? And if these invoices are sent bi-weekly, they are going to fall well within approval limits.

Moreover, who’s to say that Ted doesn’t know about Tim’s over-billing and Bill doesn’t know about Bob’s over-billing? And who’s to say that Bill and Ted don’t have a deal to approve the over-billings for each other because their wives are getting an “efficiency consulting” fee from Tim and Bob’s companies?

Maybe this doesn’t happen in your company, but it happens more than one thinks, and just because you never detected this, how do you know it’s not happening? Invoices from real suppliers for real services at approved rates can still contain fraudulent over-billings for services not actually delivered, and those proceeds can still be partially kicked back through indirect channels to organizational employees.

But how do you detect this? Very sophisticated AI-based algorithms that detect unusually high approval patterns between two organizational employees, for amounts that should have been reduced with new contracts, that don’t match typical, anonymized, organizational patterns. And then human investigation to find the truth.

So why is this so important? Besides plugging the leaks? Because if you can’t find internal collusion, how will you ever detect potential cases of external collusion? And gather enough corroborating evidence to at least get an investigation going? If industries collude, and jack prices above market prices, the organization will lose considerably more than it will lose to Bill and Ted (from the evil, parallel, universe). And this happens more than you think too, it just doesn’t always get detected and investigated. Fortunately, sometimes it does, and sometimes, even if there is no certainty that fraud happens, regulators, presented with enough evidence still investigate — like they are doing now among the German automakers (which led to a surprise raid on BMW headquarters as recently reported in the New York Times) that are suspected of conspiring to hold down the prices of crucial technology (as initially reported in July). Regardless of the outcome, technology that can identify potential fraud and gather correlating evidence will keep everyone more honest, and that’s a good thing.