Monthly Archives: January 2018

It’s Not Our Fault if Stupid Suppliers Bid Too Low But …

… it is our fault if we accept an unsustainable bid.

Over on Spend Matters UK, the public defender wrote a very thought-provoking post that asked is Procurement responsible if suppliers are stupid and bid too low?

And the doctor has to agree with the conclusion that we are not responsible for suppliers’ stupidity, only our own. And accepting any bid that is not sustainable is, generally speaking, a stupid decision, at least without a plan to make it sustainable.

In the doctor‘s view, it’s not good enough to just have contingency plans in place. If a supplier goes into bankruptcy, and publicly blames you for forcing them to accept an unsustainable contract that is bankrupting them and forcing them to lay off hundreds, or thousands, of workers, that’s not good PR. It could hurt your brand, your sales, and your chances of striking a good relationship with a new supplier who will be wary of the corporate [job] killer.

While it’s your job to find, and get, the deal that is too good to be true, you want to be sure that the deal doesn’t bankrupt the supplier, at least not until the contract runs out. So if you know the supplier will lose money as is, you need to figure out how to make sure that you figure out how to stem the bleeding sufficiently over time to prevent bankruptcy or failure.

For example, if you know, based on raw material price trends, the COGS for the product you are buying will be at least 5% more than what the vendor is quoting, have plans in place to reduce that cost as soon as the contract is signed. Either develop lean improvement plans to reduce all overheads cost as a temporary stop-gap, buy raw materials in volume on behalf of the entire supply base to lower cost, and start work on alternate designs that reduce high-cost raw material requirements if costs get too high.

If you plan ahead, you can be careful not to accept any bid that you cannot make sustainable for the supplier with at least one of the above plans. You don’t have to make the supplier profitable, although if you take the supplier beyond breakeven to profitability it may make you a customer of choice and that can have a number of benefits beyond just the unbelievably low bid you scored, but you have to be able to prevent the supplier from going bankrupt.

So don’t worry about supplier stupidity, just worry about not catching foolish fever. Then you can score big, and not suffer the fate that comes with failure in your supply chain.

Supply Market Intelligence … Harder than it Looks Part II

In yesterday’s post, we turned our attention to supply market intelligence which, as the maverick points out, is critical as much for supply risk as it is for value creation. But, as we also pointed out in yesterday’s post, despite the plethora of options, finding the intelligence you need can be difficult. All sources have strengths and weaknesses, so you need to be selective to achieve success. Where should you start?


      • financial statements: if the company is public, they must release a reasonably sufficient level of information for a sound financial assessment
      • customer interviews: if you really want to find out how good a supplier is at providing a product or service, ask a customer!

Internal Sources

      • performance reporting: gather all the hard metrics you can!
      • internal stakeholder interviews: any data they have is real company intelligence data

External Sources

      • price index data: and roll your own forecasting!
      • research services: which collect data relevant to your needs
      • blogs and social media: which offer unsolicited third party opinions and reviews
      • public consumption data: from government contracts and import registries which allow you to understand supply vs demand dynamics

This data will give you a mostly factual, relatively unbiased third party picture of the market and supplier performance in the market. All you need is a platform that can automatically gather, consolidate, project, and advise on it all.

Supply Market Intelligence … Harder than it Looks Part I

Building on our recent risk focus, we turn our attention to supply market intelligence which, as the maverick points out, is critical as much for supply risk as it is for value creation.

It’s critically important, but where do you find the intelligence you need? As pointed out in a Spend Matters (main site) post, there are a number of sources that might yield intelligence, including:


  • company websites
  • financial statements / reports
  • request for information
  • supplier interviews

Internal Sources

  • internal stakeholder interviews
  • performance reporting
  • supplier relationship management (SRM) programs

External Sources

  • news feeds and alerts
  • price index forecasts
  • blog and social media
  • peer companies
  • research services
  • advisory programs

But what’s the right source?

Consider the following downsides:


  • company websites display only what the supplier wants you to see
  • financial statements / reports only display high level summaries, they don’t allow you to identify high spend or high risk suppliers or categories
  • request for information only capture what you ask for, and only what the supplier shares
  • supplier interviews again only capture what you ask for, and only what the supplier representative shares

Internal Sources

  • internal stakeholder interviews capture their expertise and bias
  • performance reporting captures hard metrics, but only what you take the time to capture
  • supplier relationship management (SRM) programs vary by company and supplier

External Sources

  • news feeds and alerts – cover the angles exposed or available to journalists
  • price index forecasts – use in-house algorithms that may or may not be right
  • blog and social media – cover the angles seen by bloggers
  • peer companies – may cover the views of the peers, or may cover the perceptions they want to pass on
  • research services – tend to provide hard data, but on the areas they cover
  • advisory programs – are limited to the expertise of the advisors

So what’s right?

There Are At Least 12 Risk Disconnects … but One You Should Never Overlook!

Over on Spend Matters Pro [membership required], the maverick is running a 12-part Pro series on The 12 Supply Risk Disconnects that Destroy Value that you really should check out. These disconnects not only increase Procurement and Supply Management risks across the board, but often end up destroy all the hard-earned value Procurement tried to extract from the sourcing event or push into the contract.

All of the risks are important, but the most critical in SI’s view is the disconnect between risk and cost. Why?

  1. Not only can one identifiable supply chain disruption not only wipe out all the savings, but increase cost beyond the current solution but
  2. Only an understanding of the true cost of risk will convince most stakeholders and executives to look beyond cost, reliability, marketing differentiation, or whatever else matters most to them. Money talks, and (potential) loss is the one thing that gets noticed.

As the maverick points out, supply risk basically overlays the dimensions of external VUCA (volatility, uncertainty, complexity and ambiguity) on top of the quality value stream and you have to minimize TCO in the face of varying levels of risk. This creates the challenge of how to place a price tag on that risk and another price tag on the cost of mitigating those risks, which is driven both by the outside-in risk you face and also your current level of risk management capabilities. Which is easier said than done, but without a solid understanding of the cost of risk, and an ability to model it against the cost of a buy, you can’t truly optimize your overall total cost of ownership, of a potential buy.

But you need to, and you need to acquire an optimization-backed sourcing solution to model the true cost of each option to make risk-aware Procurement decisions. Because then, as SI pointed out in an earlier post, you can not only Define [True] Procurement Success, but enable it.

The Real Reason No One’s Buying Your Traditional Contract Lifecycle Management System … Part II

Yesterday we noted that the real reason no one’s buying your traditional contract lifecycle management system has not changed in eight years. That we’re still in the situation that, to be blunt, many of these solutions can still be built by a high school student with Microsoft Word and Access and mad visual basic scripting skills. A situation that, to be blunt, is pretty pathetic. We also noted that, when we first addressed the subject eight years ago, SI was only able to identify one true value of a CLM system — a value that only materialized from deep, real-time, integration with the P2P (and, to be honest, only used the metadata).

Since then, SI has only identified three other sources of true value, but, as we explained in yesterday’s pst, one of these can still be accomplished by a high school student with Microsoft Word, Microsoft Access and mad visual basic scripting skills.

So when does a system provide true value? When it offers one, and preferably both, of the following:

2. Prescriptive Analytics

And we mean true prescriptive analytics. Just integrating a third party analytics platform, like Qlik, and creating some fancy reports based on standard operational metrics (like turnaround time, new contracts per month, average expiry rate, etc.) is something that can be done by the script kiddie with an open source reporting engine. And even throwing in some predictive trend analytics isn’t that valuable as their are open source libraries with dozens of textbook algorithms to throw against your data set.

We mean real prescriptive analytics that takes the data, runs the trends, compares it to a knowledge-database of standard times across companies and industries, identifies those trends that improved with the application of one or more specific actions, and recommends those actions to decrease turnaround time, automate renewal processes, negotiate better results in a category, industry, or geography, etc. True situationally aware intelligence. That’s true value #1.

3. Semantic Intelligence

Let’s say a new compliance requirement or initiative you never expected comes at you out of left field and you have 3 months to get in compliance. You don’t track any metadata associated with it, only started using clauses in the past two years that might cover the requirements, but it really depends on the variant of the clause used, the geography in which it was used, and the rest of the contract. How do you identify which contracts are likely to be in non-compliance quickly and those that definitely need human attention without actually manually reviewing each contract without a clause you are sure is safe? Of which there could be thousands?

This is where a modern machine-learning backed semantic intelligence solution that can automatically scan, parse, index, and make sense of all your contracts comes into play. A solution that can, from enough examples of sufficiently compliant and/or irrelevant contracts (across the industry, not just your company) determine those definitely not in compliance and those most likely not in compliance and give you a probability. One that can also determine those contracts that can be eliminated from review due to expiry or coming expiry and those coming up for renewal that need one or more clauses inserted and automatically identify the right personnel. One that get’s it right 95% to 98% of the time, a success rate that will be better than the temp manpower you’d otherwise have to higher.

These solutions didn’t exist 8 years ago. But now we have almost a dozen players, mostly new, with this type of functionality — which you won’t yet find in most suites. So if you want your suite CLM to have value, better find one of these new, standalone, BoB contract intelligence platforms that can integrate and integrate it. You’ll finally be able to drill deep enough to extract gold from the claim your original CLM vendor sold you, that, up until now, has proved worthless.

So if you want real value from a CLM solution, get one that embeds natively with your P2P through APIs, offers integrated prescriptive analytics, and provides you with modern semantic intelligence capabilities. Then you will truly find value that you could not find before.