Monthly Archives: December 2017

What’s Procurement’s Role for 2018?


As we enter the new year, the predictions and prognostications are going to get crazy again. And, like always, they are going to be of the obvious variety or, as the public defender points out, of the wild guesses.

But the reality is that from a process, power and performance perspective, not much will change … it will be the continual slow prod forward that it has been for the last decade. However, as the past few years have shown us, one thing is constant. Suppliers will fail. Disruptions and Disasters will happen. And your technology vendors will get acquired.

We’ll start with this last point first. Over the past year, Jaggaer and Coupa tried to outdo each other in an acquisition frenzy. Spend360 and Pool4Tool and Trade Extensions and BravoSolution all scooped up by Procurement space giants trying to get bigger. No matter how big, how successful, how stable, or how much they indicate a desire to remain independent, they could literally be scooped up tomorrow. Everyone has their price, and if it’s a PE firm, the company is flipped as soon as that price is met. And as we discussed in our recent post on M&A on how The Mania Continues, if this means there is solution duplication, at some point, you can be pretty much assured someone’s solution is going away. M&A’s are done to enhance synergy of offering or enhance profit through synergy of operation where you can reduce staff and product footprint against a larger customer base.

This means that Procurement has to expect that, at some point, at least one of its preferred platforms is going up in smoke, and has to be on the ball to identify what platform may be at risk, when, and what steps will have to be taken to mitigate that risk.

Similarly, it will have to insure it is keeping an eye on all critical suppliers — which, as the best know, is not just the 20% of suppliers who get 80% of the spend, but any sole-source or dual-source supplier that supplies a product or service critical to the organization’s primary product lines. If the product line could not be offered, or not offered to the full extent, without that supplier, any impending issues need to be detected early. This will mean keeping an eye on the organization’s credit risk, timeliness (if shipments get later and later, that could be an indication of trouble), sustainability ratings, negative mentions in the news, and so on. (An SRM solution that integrates with risk watchdogs will be critical.)

And, finally, it has to be on the alert for natural or man-made disasters that can pose a risk to parts of its global supply chains. It not only needs to know when an event happens that could affect a critical part of its supply base, but what suppliers in particular will be effected.

It has to be a watchdog on constant alert. Just sourcing and negotiating great deals is not enough. They have to be realized. And, for that, Procurement must be the best watchdog there is.

Why are We Still Hyping Big Data When We Haven’t Mastered Small Data?

The end of the year is coming, everyone is looking for next year’s tech, and everyone wants cognitive / AI that works on Big Data. But there are two real problems with this:

1. With current hard drive and memory capacities in a single machine, we typically don’t have enough data to fill it (at least with efficient encodings) in our typical back-office functions or unbearable computation times on a quad-core (with efficient algorithm implementations).

2. When it comes to learning, the biggest sets we have for training are typically quite small!

We’ll start with the second point first. Consider spend analytics, where the primary task is to map transactions to a categorization hierarchy. If you want to use a “deep learning” AI, then you need a big data set to train that AI. But how many transactions will the average organization have that have been mapped and verified individually by a human? Maybe 10K or 20K. Even a spend analysis provider will typically have only verified a few hundred thousand or maybe a couple of million compared to the tens or hundreds of millions of transactions its big customers will throw at it a year.

The situation is even worse for contract analytics. A large multi-national might have 20K contracts, but how many have been properly indexed with meta data at the clause and term level? If you have 2K you’ve struck gold. A contracts analytics provider might struggle to cobble together a data set of 20K contracts. This is even smaller data.

And then moving on to the first point. Even though most first (and even second) spend analytics applications are slow, (Opera) BIQ has been able to process and re-categorize a million transactions on a dual-core or better laptop with 8GB of memory in under a minute for almost ten years, and their most recent version on a modern quad-core laptop with 16GB of memory can handle a million transactions in a little over a second! In fact, it can handle ten million transactions in less time than it takes you to enjoy two sips of your coffee. And when you consider that most analytics are only on a set of related categories for a relatively short time period (at most 3 years), the number of transactions is typically only a few hundred thousands for a large company and in the tens of thousands for a mid-size company. That’s not only small data, but data that can, these days, even be processed in your browser (as a new analytics offering will prove next year).

So before you go goo-goo-ga-ga over big data, understand how big your data really is and get the application that works best for your data, which will more likely be at a cost point that works best for Finance as well.

Put an (Enormous) Bow on It: The Dual-Sourcing Strategies Behind Holiday Car Commercials

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”.

The holiday season is upon us, and you know what that means.  Procurement professionals aren’t the only folks stressing over purchases. All over the world, people are going to market in search of suppliers that’ll provide the gift from the commercial. They want to source a product worthy of jingles and voice-over narration. Maybe it’s a car they’re looking for. In that case, they’re embroiled in procurement campaigns with one big, red goal in mind.

The commercials make the process look easy.

Holiday advertising campaigns paint a wildly simplistic picture of purchasing decision-making process. Viewers are not only expected to believe such enormous bows exist, but also forced to ignore the complexities of purchasing initiatives. They focus exclusively on immediate outcomes.  Favouring hugs and hand holding to the hard work of market research and implementation, they depict a world that can only exist in 30-second pieces.

In a Procurement context, every commercial implies that its amateur Supply Management unit has settled on a single-source solution.  The product – whatever it is – solves a problem, fills a gap, or answers a question instantly.  We’re meant to understand that the supplier (in this case, a vehicle manufacturer) will always meet service expectations.  New cars are never shown replacing a predecessor. Instead, they sit alone in the driveway waiting for the happy family to ‘unwrap’ them and drive into the New Year.

But what really happens as December turns to January and February?  More likely than not, the happy family will employ something like a dual-source strategy. Let’s take a look behind-the-scenes.

Our family has enjoyed a long relationship with the incumbent vehicle. So far, it’s provided value adds in the form of great fuel economy statistics and a comfortable interior.  They’ve also upheld their end of the ‘supplier relationship’ by changing the oil and bringing the car in for regular inspections.  Recently, however, the car’s performance has shown room for improvement.  Maybe the transmission is making a strange sound, or perhaps the family has children on the way and needs something bigger. Whatever their reasoning, this impossibly photogenic family has begun to survey the market.

After months of careful consideration, they’ve located a cost-effective, environmentally-responsible option that promises years of happy driving.  Now, they’re all set for its dramatic unveiling.  That doesn’t mean they’re selling the old car for scraps.  After all, it’s still the supplier they’re most comfortable with, and there’s no guarantee the new car will work as planned.  Retaining the old stand-by as a secondary option greatly reduces the risks associated with such a large purchase.  The old car will enable them to slowly familiarize themselves with the new one’s features and functionality while providing a fall-back plan if something unexpected should occur.  Though they’ll gradually drive the old car less and less, it should prove essential as they transition to an exclusive relationship with their new vehicle.

For companies, employing a dual-sourcing strategy can prove similarly effective for minimizing risk and easing into a new supplier relationship.  Like trusted automobiles, supplier relationships sometimes suffer as years of wear and tear accumulate.  Savvy Procurement professionals are always scanning the market in search of more competitive options, but making a switch is rarely simple.

Long-time suppliers tend to ingrain themselves within a company’s operations and culture.  New vendors can’t hope to equal the trust they’ve established, the value they’ve provided, or the solutions they’ve implemented overnight.  Sending the supplier to the junkyard might prove as short-sighted as scrapping a perfectly good car.  The most responsible and cost-effective option might be to gradually cut ties with the incumbent provider.  That way, companies can enjoy the dependability they’ve grown accustomed to as they begin to establish and optimize their new relationship.  With consistent communications throughout the implementation process, companies should enjoy smooth transitions that satisfy their needs without inviting undue risk or putting too much strain on either supplier.

A dual-sourcing strategy won’t get your company on a commercial.  Responsible behaviour rarely winds up on television.  Still, as a low-risk, cost-effective plan your dual-sourcing system should set you up to more confidently make bold purchasing decisions in the future.  Procurement might never present your company with a big, red bow, but it should annually provide the gift that keeps on giving: sustainable cost savings.

Thanks, Jennifer.

Dear Procurement Organization, Are You Making The Big RFX Faux-Pas?

Short answer: If you have an RFX due this month, you in all probability are!

Right now, many vendors have more RFXs due this month then they have had due the last two months, and the big question we all need to be asking is why.

Are these organizations really going to make a decision this month? Are they even going to evaluate these proposals this month? The answers are, of course, no and no! So why are the proposals due?

the doctor completely understands the desire to start evaluating proposals as early as soon as possible, but when as soon as possible is probably mid-January or later (when everyone returns from holiday vacation and deals with the fires that have been lit in their absence), why should the proposal be due this week?

Yes, vendor representatives take holidays too, but the best vendor representatives for the best vendors do not take holidays when you need them — or their best. And if you delayed your proposal due date until you actually needed the proposal in January, the best vendor reps would be back to work on the 27th spending even more time on your RFX to get you all of the details, value models, and other information you need to make the right decision.

But if you insist on a proposal weeks, or even months, before you are going to seriously evaluate it and make a decision, you are shorting yourself … and your supply chain peers (and even suppliers) who also have RFXs in to the vendor and need the vendor to put its best foot forward to make a proper decision.

So, don’t ask for an RFX until you are truly ready to review it when all you need is a confirmation of intent to submit and maybe a simple RFI with basic vendor information to (pre)qualify them. Ask for what you need only when you need it and you will get better responses, make better choices, and get better results!

SI Won’t Be Paying (or Taking) BitCoin Anytime Soon …

According to a recent Guardian Headline, the Japanese firm GMO Internet will start to pay a portion of its employees salaries in the cryptocurrency Bitcoin in an effort to gain a better understanding of the currency.

While SI sees the value of Bitcoin, especially for global transactions (as this could eliminate the need to manage multiple currencies as all the organization would need to do is manage its in-country currency against Bitcoin), it does not see the value of using Bitcoin for salaries and does not think employees will either. Nor should an employee (or a consultant or even a small businesses) be forced to take the financial risk of being paid in what is essentially a stock at the moment with prices changing, sometimes rapidly, from day to day. Between the time they get paid and can convert their salary to yen, they could have a serious portion of their salary wiped out. That’s not fair.

While companies should get a handle on this, they should be learning by way of B2B transactions, as mid-size to large businesses, with their advanced online banking and trading platforms, and full time financial managers, are not only in a better position to not only exchange Bitcoin for Yen as needed, even on short notice, but also more capable of weathering temporary storms, letting the ‘coin sit during temporary drops, or using it quickly during temporary gains, and using Yen from the bank when it makes sense.

That’s why SI(‘s parent company) will not be paying its employees, contractors, or small business suppliers Bitcoin, and why it won’t be accepting Bitcoin (or any other coin) in the near future. Until more banks are equipped to handle these currencies in their platforms (as true currencies, and not just for [futures] trading), crypto currencies, for the doctor, will remain a C2B or B2B currency.