Monthly Archives: April 2018

You Want to Get Cognitive? First Get Optimized!

The new “cognitive” buzzword is getting a lot of people interested in modern Sourcing and Procurement technology, and that’s a good thing, except when it isn’t. (How can it now be? Not all providers truly offer cognitive capabilities, not all are equal among those that do, and not all are right for your organization.)

And unless you truly understand what cognitive sourcing can do, when it should be used, what technologies you need to power it, and how to properly apply it, the answer is no cognitive sourcing is right for you.

When it comes to sourcing, a sourcing solution must meet a number of requirements in order for it to be considered cognitive. It must be capable of:

  • supporting advanced cost models
    to allow for an accurate determination of should cost
  • supporting sophisticated automated data collection to populate those models from market indices, statistics bureaus, public (government) data repositories, etc.
  • supporting a large repository of trend analysis algorithms
    to help an organization understand market dynamics
  • support sophisticated analytics
    to help organizations slice, dice, and compare all the insights extracted by the cognitive platform
  • support advanced optimization
    to analyze the cost models and all the supply and logistics options available subject to business constraints

If you look at each of these requirements in comparison to an average Procurement organization with some semi-modern Supply Management technology

  • they have some cost modelling capability in their ERP
  • they have some automated data collection around risk and commodity costs through providers like D&B and Ecovadis and Market Index data providers
  • they have some familiarity with trend analysis in their inventory management systems
  • they have adopted a spend analytics platform, which may be a generation behind, but still gives them some cost insights
  • but they have no decision optimization at all

So if you really want to get cognitive, get optimized. Without a good understanding of what optimization can do, and how to use it, how do you expect to figure out when to apply, and not to apply, cognitive sourcing technology properly.

M&A Has Been Mad. Platforms Will Disappear. But There Will Be More Than One. But Who?

We’ve been writing a lot about M&A lately, including, but not limited to, our pieces on:

because M&A is still going strong. (And, as per our recent post on The Hidden Value of SI Association, SI is acutely aware of this because this is how it loses its customers. SI works with these companies, helps them become known and successful [through a focus not on buzz but actual education, process improvement, and appropriate roadmaps], they get noticed by cash-rich firms, who then buy them, and in many cases, strip out the management teams and/or consultants.)

We’ve also noted that not only will some platforms have to disappear (to make the mergers successful) but that (in our recent piece on One Vendor Won’t Rule Them All … And One Ring Won’t Bind Them), due to the wide range of needs that organizations need and the different process that are used around the globe in organizations headquartered in different regions and run by different cultures.

But that being said, now that Sourcing and Procurement technology is starting to become more mainstream — and the majority of organizations are looking for analytics, procurement automation, and supplier program management — those organizations that are looking for their first platform (as well as the early adopters of first generation platforms that are now almost a decade behind) are trying to figure out who they should look at and, more importantly, what product lines they should look at (now that some organizations have as many as three different product lines for Procurement under one organizational roof).

This is hard to predict, especially since the Fortune 500 is in more flux than it’s ever been. It used to be if you were on the list, you were on the list for years (if not decades) and changes were subtle. Now a company can make it one year and as a result of one major disruption or media fiasco, be in bankruptcy the next year (and disappear from the list). And while most of the companies in our space are not on the Fortune 500, these companies are now being bought by the big enterprise software giants, including SAP (with a market cap over 100B), that are.

And the instability in enterprise software companies amplifies they smaller they are, and when the biggest stand-alone public company in our space has a valuation of a mere 2.5B and the largest private company in our space would likely get a valuation in the same range, you can see where we are when the average large company has revenues that you have to round up to 100M and the average BoB vendor rounds to the 10M range.

But the platforms provided by some companies, due to the immense value they offer, will survive, even if under a different name, as part of a different platform, under a different company, held by a different holding co, whose name may change three times over the next decade. And who will they be?

Simply put, they will be those platforms that are the hardest to replicate and offer the deepest capabilities that are key to value identification, like optimization, advanced predictive and prescriptive analytics, cognitive process automation, semantic risk identification and monitoring etc — whether the platform is a standalone best of breed platform in a financially stable 10M company or part of a suite of a larger 100M company or just one module in a suite in stable of suites in a 1B enterprise. So don’t try to guess which vendor will survive, instead focus on what platform will survive — and chances are you will be setting your organization up for success.

We’re In the Midst of Conference Season … What Have We Learned So Far?

There are two conference seasons in enterprise software, Spring and Fall, and enterprise sourcing and procurement falls into this squarely.

Every year, it seems to get crazier and crazier, but what have we learned?

The Bigger You Want to Appear, the Bigger Your Conference Needs to Be

Back in the day, if you were big, you satisfied yourself with a low-key user workshop … so low-key that it might not have even made your website. These days, you do big 3-day affairs, splashed across the relevant parts of the web, and keynote it with the biggest names you can get, whether or not they have anything to do with Sourcing.

The Bigger You Want to Appear, the More Events You Appear At

It used to be that you went to an event or two and splashed your banner, but now you go to every major event — ISM, Procurement Leaders, ProcureCon, SIG, etc — and all their instantiations. You’re on a constant roadshow, because the gospel needs to be spread far and wide.

The More Attention You Want, The More You Focus on Indefinites

Instead of focussing on functions, or process improvements, or knowledge, there is a big focus on value, customer success, or organizational recognition.

In other words, many of the big vendors, who have been pumped up by big PE coffers or IPOs, have apparently used their reserves to lure away the big enterprise CMOs under the assumption that the broader enterprise success strategies will work in Sourcing and Procurement. Their tactics are certainly getting them noticed, but these people are used to selling to IT, Operations, Marketing, Accounting, etc. — everyone but Procurement.

They haven’t yet figured out that Procurement is different.

First of all, Procurement are tough negotiators — they’re not going to pay a penny more than they think the software, and the services (be it implementation, process improvement, or other best practice education) that comes is worth. So unnecessarily boosting overhead by spending money on trade shows that don’t deliver value (because they don’t enable any learning opportunity) or on keynotes that don’t advance the knowledge of the attendees (because they don’t know anything about Procurement) or on drastically overpriced venues doesn’t help their case.

Secondly, Procurement want more than one-way conversations. They want interactions. They want input into the next release and the overall roadmap. And they want to learn as they do it. But these days, many user conferences have done away with the user feedback sessions, even though it’s the perfect place to do it.

It wasn’t long ago the marketers in this space got that. Let’s hope they reclaim their top spots after the new mega cos realize that the enterprise marketers they brought in are missing these fundamentals. Because for our space to advance, everyone has to be smart on all sides.

April Planning Prevents May Panning (for Gold)

Let’s face it, once May comes around, you’re under the gun to identify significant savings before the end of June when you, or more importantly, your bosses want to take some time off during the summer (and know that suppliers do the same and results will likely be limited until people get back to work full force in September).

But if you wait until May to identify those categories you are going to go after for quick wins, you’re better off panning for gold … it will have a better success rate. Even if the best method to capture those savings is identified as a reverse auction, and even though it can be run in a day, by the time you

  • run a spend analysis across categories not significantly under contract or where the contract is expiring
  • collect market / should cost pricing and demand across the categories and estimate savings opportunities
  • rank the opportunities
  • evaluate each opportunity and identify the best strategy
  • extract those where auction is the best choice
  • identify the appropriate supply base for this subset of categories
  • get the suppliers onboarded in your SRM/Sourcing system
  • send the invites and get commitment
  • run the auction
  • cut and sign the contracts

… it’s mid to late summer. But if you start this process now, limit the quick-hit projects to those where you already have most of the suppliers in the system, and get going just on those, you will have time to finish a few of them before summer hits. Otherwise, if you wait for May, you’re better off packing your pans and booking a ticket to Alaska.

Don’t Go Down In Flames …

… just like Jesse James.

For those of you into Americana, One Hundred and Thirty Five (135) days ago today, Robert Ford, who was in Jesse’s gang, killed Jesse James for a reward. Jesse James was one of America’s most famous outlaws who, after the civil war, gained significant notoriety, and even public sympathy, as a result of his many successful robberies that included banks, stagecoaches, and even trains and the portrayal of him as America’s Robin Hood (who stole from the rich and gave to the poor), even though there is no evidence that he or his gang actually shared their spoils in that way. (And when he was killed, he became one of the legendary figures of the Wild West.)

And while it might be nice to be legendary, a corporate death is not the type of legendary you want to be. But it’s one that’s easy to realize if:

  • You upset too many senior stakeholders with aggressive savings-focused sourcing events that ignore stakeholder desires and even requirements (even though this may make the CFO do the dance of joy)
  • You achieve too much success (too fast) while satisfying all of the sourcing requirements and make your peers look bad in comparison (because you achieve double digit savings while adhering to every business constraint and satisfying every named stakeholder requirements) … giving them incentive to back-stab you (and set you up for failure not of your doing)
  • You step on the toes of too many powerful incumbent suppliers (with CEOs that join your CEO on the golf course) and/or take too much business away from them too fast (even though they may need to be replaced, replacement of major incumbents often has to be done slowly and with care)

So, when you are reviewing your contracts and (re) sourcing your significant categories, be sure to do so with care and finesse — your incumbents may need replacement, but such replacement will have to be done with care, and support. It’s a sad truth that sometimes your efforts will be undermined by personal relationships between chief executives and board members, but a truth you need to be aware of and approach with caution. Once these individuals understand what their relationships are costing them, or you get the CFO or CEO to help you explain that to the stakeholders, you will be able to (slowly) replace the suppliers and make the right sourcing decisions (and save), but the last thing you want to be is alone, because, instead of being seen as a hero, you will be seen as an outlaw, and someone who will be given up for a bigger reward. Sad, but true.