Monthly Archives: December 2017

Cognitive Procurement? How about Plain Old Informed Procurement?

While the true Procurement leaders (that pose a subset of the Hackett Group 8%) may be looking ahead to cognitive procurement solutions in the new year, the reality is that the majority of the market is still just looking for insight.

LevaData, one of the few true Cognitive Procurement players (reviewed in this post and in detail in a 3-part Spend Matters Pro series co-authored by the doctor [Part I, Part II, and Part III), recently released the results of its 2017 Cognitive Sourcing Survey that had some scary statistics that included:

  • only 13% of procurement managers engage with their suppliers on a constant basis
  • RFQ total cycle time for an average organization is 40 days
  • only 5% of respondents use third-party, purpose-built solutions for business and market intelligence, with 67% relying on internal solutions and/or Excel spreadsheets! (which is how not to excel at forecasting)

OUCH!

How do you know what you should be paying if you don’t even know what the market is paying? How can you get anything done if a simple request for quote, which only goes out after the specs are complete and the suppliers have an understanding of what you want, takes 7 weeks! (When it shouldn’t even take 7 days!) And, most importantly, how do you have a clue how things are going if you don’t engage with key suppliers regularly?

For the majority of companies, it’s not about cognitive, it’s about entering the modern age. Cognitive would be nice, but right now, they need plain old market intelligence, spend visibility, supplier relationship visibility, and efficient e-Negotiation automation. Without this, they are stuck in the industrial revolution … like their great great grandfathers were 100 years ago!

Catalogs Will Never Die

You may think catalogs are passe, but you need look no further than Coupa’s, yes Coupa’s, acquisition of Simeno … for it’s catalogs! WOW! Isn’t that what Coupa did, easy catalogs for easy buying?

According to the press release it acquired a leader in cross-catalog search and advanced catalog management that creates localized content from third-party supplier sites to power cross-catalog searches, including content from many of the leading B2B marketplaces and it did it to grow its Open Buy Program with the addition of the marketplaces to deliver a best-in-class cross-catalog search capability that is competitively distinguished while increasing its local presence in key German and Swiss markets.

We guess Coupa really wants to be the Amazon Business of the S2P world in the global market place!

But it does prove our point – the paper may have gone away, but people love their catalogs! Search, click, buy. Search, click, buy. Why RFI when you can search, click, buy. And, implemented and managed right, they are a great tool for attacking a significant portion of often overlooked tail spend.

And even if people don’t, this is obviously what Coupa believes as the new Simeno site focusses entirely on catalogs and those of you who knew Simeno knew that, especially if you read the Spend Matters Pro brief co-authored by the doctor (Part I, Part II, and Part III [membership required]), they also offered a procurement, basic contract management, and basic analytics application as well before the acquisition.

The catalog is dead. Long live the catalog!

A Lighthouse Without a Sufficiently Bright Light …

… does little to steer ships from the rocky disaster that is about to befall them. All it does is make clear the impending doom that awaits the ships unable to escape the waves about to crash them on the rocks.

Similarly, a spend visibility solution that does little more than show you data a quarter old without any ability to derive trends and capture outliers in realistic time frames, is no better than a lighthouse without a sufficiently bright light. All you will see is how much you over-spent on goods and services in the past, with no ability to recover that spend.

If you want to avoid hitting the spend management rocks and seeing all those negotiated savings go out the window, you need a solution that allows you to see your spend at most a month in the past, and for fast moving inventory, a week. You need a solution that allows you to plot trends, past, present, and future based upon similar market conditions; alter those trends based upon projections; and determine savings / loss opportunity based upon those projections that you can act on … while you have the opportunity.

Similarly, you need a solution that can capture all the contracts and contract rates, with all the contract suppliers, that can detect as soon as spend is off contract, who made the spend, where, and if it needs to be addressed. Roll it up, send it to the right managers and account managers, and make sure it’s addressed while the suppliers are still under contract.

But without this solution, you have no idea what is overspent, where, why, or how. — until it’s too late. And there’s nothing you can do about it. Don’t be in that position.

How Many Platforms Do You Need? How Many Platforms Should You Need?

Sourcing is not simple. Finished goods. Made to order goods. MRO products and services. Services. Tail Spend. An average organization, if they need best of breed, might need an indirect, direct, MRO, services, and tail spend solution. Especially since most current platforms only support one such type of (strategic) sourcing project well.

Think about it. Especially in North America, the typical platform was built for indirect. Finished goods and cookie-cutter one-price services. The deep bill of materials (BoM) support required for direct sourcing or Statement of Work (SoW) for services sourcing is not present. And then MRO, which is mainly the re-ordering of parts and maintenance services to keep production lines or distribution humming. And, of course, the management of tactical tail spend as part of an overarching strategic initiative to never pay more than market for anything not worth strategically sourcing.

But an organization that ignores any of this spend is losing. Most organizations are not able to source more than 1/3rd of spend strategically a year, and if the organization only has an indirect or direct sourcing platform, that’s 1/3rd of product spend, or maybe 1/4th down to 1/5th of total spend. Even if you identify a savings of 10%, that’s only 2% to 3%, max, that can go straight to the bottom line.

Considering that, on average 30 to 40 cents of every negotiated dollar of savings does not get realized, that’s only 1% to 2% savings to the bottom line. That’s not enough. Procurement needs to be delivering 5% or more to justify it’s place as the undisputed value king of the organization. To do that, it needs to be identifying 7% to 8% savings, and to do that it needs to be sourcing not 1/5th to 1/3rd of spend, but 2/3rd to 3/4th of spend.

This means that if the solution it has only supports indirect, but it’s product spend is roughly evenly split between indirect and direct, then it also needs a direct platform. And then, depending on what the next biggest category of spend is, it will also need a platform for services spend or tail spend.

But should Sourcing need three different solutions to be the value king? That seems extreme! Especially when the sourcing process in all cases typically revolves around RFX, online bidding, optimization and analysis, award, and contract. It’s not like each type of spend uses completely different processes. The difference is just that direct uses a bill of material and extensive cost models, and services use detailed multi-line statements of work. Couldn’t one build a direct solution that could also do indirect by simply allowing the BoM to be a top line finished product? And couldn’t the grids, models, and analysis adapt to that lack of detail?

And when you think about a statement of work, isn’t that just a bill of materials for a service. Instead of raw materials, it’s individual task components. The grids are similar, it’s really just the realization of the abstraction.

So, we know how many sourcing platforms you typically need (at least three). But how many sourcing platforms should you need?

(Hint: The answer is ONE!)

3-D Printing Will Bring Changes to Direct Sourcing

But not overnight, at least not for the changes being touted as the future of direct sourcing.

Print a part on demand? Not likely. Not soon.

Print a sample part on demand for evaluation — you could have that tomorrow.

What’s the difference?

First of all, today’s 3-D printers can only work with very specific plastics. Generally speaking, these plastics will not be suitable for the vast majority of parts the organization needs.

Secondly, most 3-D printers cannot mass produce parts fast enough to be useful to an organization that needs the parts in quantity.

Thirdly, the economics of 3-D printing today are not nearly where they need to be for mass production compared to current production techniques.

It will be a while before each of these criteria are met, and until they are, 3-D printing won’t be the future of direct sourcing.

But they do have their uses. Let’s say you are collaborating with a supplier halfway around the world in the design and development of a new part. If it requires regular review of a physical part, and getting that part on a regular basis requires global expedited shipments that cost hundreds of dollars a shipment and take up to a week to arrive, then the organization will be spending thousands of dollars on shipments and losing weeks, if not months, of production time while it waits for a part to arrive.

But with 3-D printing, an almost exact replica of the part, down to at least 2mm, even if it’s a metal part, can be printed locally from the CAD/CAM design files. And this can be done for a few dollars in a few hours. This is a significant contribution to the NPD process. And a considerable change to direct sourcing as life-cycles, and costs, can be considerably compressed and quality improved before the first part is delivered.

This simple change alone is significant, and we don’t need to wait for the future to get results. As long as we go in with an understanding of what those results will be.