Monthly Archives: August 2018

MoviePass and the Importance of Strategic Suppliers

Today’s guest post is from Bennett Glace, the primary contributor and Editorial Lead for the Strategic Sourceror. A prolific procurement and sourcing blogger, he is responsible for advocating the function’s value in podcasts, white papers, and other accessible content.

On an almost daily basis throughout this year’s summer movie season, cinemagoers have read headlines charting the struggles of MoviePass. The low-priced subscription service was intended to disrupt the traditional theatre model and get audiences excited to go to the movies once again. While initially successful, the service’s last few months now look like a cautionary tale.

In a recent Harvard Business Review essay, Eddie Yoon points out a number of flaws in MoviePass’ pricing model and approach to customer service. Using the company’s woes as an instructive jumping off point, he provides suggestions for its inevitable successors. His arguments also suggest that MoviePass and its disappointed customer base provide a case study in the importance of developing and nurturing strategic supplier relationships. MoviePass’ subscribers are right to feel burned, but it’s clear a more strategic, informed approach to assessing the ‘supplier’ could’ve saved them a great deal of exasperation and money.

To exist as a strategic function, Procurement requires a strategic approach to its supplier relationships. A key step in establishing an effective Supplier Relationship Management program is identifying suppliers who are willing and able to provide for a strategic relationship. These are suppliers who show an interest in engaging directly with Procurement, tuning into its unique requirements, and providing flexible, dependable services. When it comes to supplier selection, anything that strikes Procurement as one-size-fits-all should raise concern. Effective supplier relationships depend on personal, individualized attention. Whether this means favouring local suppliers and distributors over national options, or consolidation over dispersal, will vary based on the organization, but no supply chain professional would dispute the importance of suppliers who can offer hands-on, tailored services that enable a strategic partnership to take shape.

Over the last few months, MoviePass has shown itself to be anything but a strategic supplier to its more than 3 million buyers. Their one-size-fits all approach to pricing and customer service provided for such a massive expansion, but, in Yoon’s words, “MoviePass had to grow much faster than its customer support could keep up with.” Describing their increasingly hands-off service offering, he continues, “The constant price and product changes clearly show how little it understood what customers wanted.”

He begins by discussing the service’s much-discussed, outrageously-low price. Presented as MoviePass’ primary selling point, the $9.95 monthly subscription fee struck millions as a deal too good to pass up. Recent developments suggest it was something closer to too good to be true. Even rookie supply chain professionals know the perils of making supplier selections based on price alone. Cinema lovers, too, have now learned this lesson the hard way.

While moviegoers across the country would agree that tickets have gotten more expensive, Yoon points out that the definition of “expensive” varies considerably by region. MoviePass’ $9.95 monthly price point is a definite bargain for residents of New York or California, where ticket prices average more than $15.00, but most Kansans are unlikely to consider the service so cost effective. Yoon writes, “It is silly to think that a one-size-fits-all national strategy is the right approach for a market as technically and economically diverse as the United States.”

MoviePass’ dedication to a one-size-fits-all service offering not only left their customer base underserved, but ultimately left them struggling with unpredictable demand. As Yoon writes, “MoviePass failed to recognize how the behaviour of super-consumers, customers who are highly engaged with a category and a brand, differs from that of average consumers.” These super-consumers, attending numerous films every week are not unlike any suppliers customers of choice. Customers of choice expect and deserve value-adding incentives based on their particular needs and buying habits. It’s these extras that differentiate truly world-class suppliers and provide the foundation for long-lasting supply chain partnerships. By tailoring certain aspects of its offering to serve its loyal, high-volume buyers, MoviePass might’ve developed methods for better managing spikes in demand. What’s more, these customers would’ve felt appreciated enough to consider MoviePass a preferred supplier even through the recent growing pains.

MoviePass, for their part, seems convinced they’re here to stay. Speaking to NPR, CEO Mitch Lowe remarks, “Amazon lost money for 20 years. Netflix still loses money … our competitors are the ones who keep spreading rumours that we’re going out of business. And clearly, they’re afraid of us and would much rather have a clear playing field.” Lowe suggests that, as a supplier, MoviePass is less concerned with serving its buyers, less concerned with turning a profit even, than it is with instilling fear. The implications for the business’ corporate culture are eye-opening. Lowe paints a picture of an organization that will forsake its commitment to customer service and spread itself past the point of sustainability in order to appear intimidating. That’s not even to mention the lingering questions about how MoviePass intends to use consumer data. Back in July, Lowe (somewhat infamously) joked, “We know all about you.” While Procurement certainly desires suppliers who know its business in-and-out, these suggestions should raise red flags.

Yoon makes note of MoviePass’ troubling attitudes as well. He concludes his essay by remarking, “MoviePass’s struggles provide evidence that bullying is a bad business plan.” Here and there, Procurement has certainly impressed its peers as a cost-cutting bully. Within leading organizations, however, those days are over. The function is widely engaged in efforts to undo its negative perception, build a better brand, and contribute to a positive corporate culture. Identifying and partnering with ethical, dependable suppliers who share Procurement’s values is an important step in establishing this culture and making Procurement a strategic business partner. Continually, MoviePass has revealed itself to be a supplier of less-than-stellar character walking into a less-than-certain future. If Procurement wants to continue rehabilitating its image and protect the reputation of its organization, it can’t afford to do business with this sort of supplier – at any price.

Thanks, Bennet!

e-Procurement Benefits – Just What Are They?

A couple of posts ago we indicated that e-Procurement benefits were true, but left you with a caution that process was a key element. How much so? Well, let’s talk about what the big benefits are.

On-Contract Spend

If there’s a contract for a product or service, the system can steer the user towards the contracted product or service, and not even allow a purchase to go through unless it is for the contracted product or service. This can significantly cut down on off-contract maverick spend and this makes a noticeable bottom-line impact when the off-contract spend was significantly higher than the market price.

Market Costs

When a product or service is not on contract, a good e-Procurement platform with a catalog that has multiple entries for products and services at market prices ensures that an organization will only pay market cost for a good or service the majority of the time. While the savings will not be as significant as when there is a contract, if the organization was generally paying more than market, this will still add up.

One-off Spend Approvals

Without a system with insights into on-contract goods and services and market costs for off-contract commodity goods and services, the best insight you, and your approvers, will have is the handful of RFIs that were returned from the 3-bids-and-a-buy. If all of these were above market cost, who would know? No one, and that’s why an organization overspends here as well. But with a good e-Procurement system, approvers will have insight into market costs and will make smart decisions and not approve anything excessive.

These aren’t the only benefits, but these are the big ones that cause many organizations to claim big, multi-million dollar, savings from their e-Procurement system. But, as per our last e-mail, how many of these are the system? And how many of these are the process supported — or instilled — by the system? And does it matter?

Stay tuned!

Category Management: Getting it Right is Key to Surviving the Trade Wars Part III

The Trade Wars are here! Tariffs! Counter-Tariffs! Counter-Counter-Tariffs! Counter-Counter-Counter-Tariffs! Even online traders can’t trade that fast. It’s dizzying.

And if you’re planning didn’t start weeks ago, you have a lot of catching up to do. Because if you don’t, your business may not survive. Literally.

So far, we told you it was critical to:

    1. 1. Understanding your Current Costs in Detail
    1. 2. Understand your Tier 2 Supply Chain in Detail
    1. 3. Start By Identifying Alternative Supply Choices
    1. 4. Then Build Alternative Cost Models Around those Alternative Supply Choices

5. Re-Evaluate on Every Tariff Change

But this is not always enough. What if the majority of the rare earth metal comes from China and the cost is insurmountable for your business? You also need to:

6. Start looking at alternative designs that eliminate dependence on a single country.

You can’t be dependent on China, the EU, or any other locale that Trump is targeting. Costs could go through the roof.

Also, you can’t be dependent on certain transportation methods. If diesel costs go through the roof, long haul shipping is going to get considerably more expensive. It may actually be cheaper to do short-haul trucking from Mexico or Brazil if you’re selling in the US because you know that the US may subsidize your industry in other ways (with lower taxes or rebates for buying / shipping at home). Thus, you also need to

7. Start looking aggressively at near-shoring.

SI has been telling you for years that sometimes the best cost county sourcing is home country sourcing, and when that’s not viable, near-shore sourcing is becoming a better option again. Find alternative suppliers closer to home, just in case!

And, you better make sure their supply chains are secure.

8. Weed out near-shore suppliers that are actually getting most of their materials or doing most of their production remotely.

Remember, the entire point of trying to bring production closer to home to ensure affordable supply is to actually bring production back, not just source from a supplier that is just an intermediary that outsources on your behalf. That actually adds more time, risk, and cost to the supply chain.

Is this everything you can do? No, but it’s progress.

E-Procurement Benefits … Fact … But …

Last week, Tony Bridger gave us a great two-part series which asked if e-Procurement benefits were fact or fiction because it has fallen out of favour with the academics over the last decade, with few toting its benefits as they did when it first hit the scene.

And Tony had some great points. E-Procurement was touted as the panacea for all Procurement woes, but the first generation of solutions did not deliver. Many Procurement teams use systems to negotiate great contracts, but great contracts don’t deliver improvements — execution against them does. The best spend analysis system delivers zilch out of the box — it takes an educated, trained, experienced, intelligent buyer to sniff out the true savings opportunities. And, most importantly, every single buy is just a tiny bit different. And buys that are far enough apart need different capabilities and solutions.

And, most importantly, the best platform in the world is useless if it is not adopted and use by all of the buyers all of the time.

e-Procurement platforms can deliver the benefits they promise, namely an end to maverick spend, approval control, workflow configuration, and spend under management. But only if they are properly implemented, properly adopted, and properly used.

You can search the archives here on SI and over on Spend Matters for a description of the benefits, as well as a description of necessary platform requirements to get those benefits.

But one thing that is not always clear in our past articles, and that should be made clear as a result of Tony’s posts, is that e-Procurement is more than just platform, it’s process. It’s the process of doing a proper event, recording the contract and meta-data in the e-Procurement system, issuing the POs against the contract, insuring the invoices — and shipments — match the POs, and getting approvals before payments. If there are no contracts, and the buy is not big enough for a sourcing event, but over a certain amount, then it’s critical to get proper approvals. All spend haas to go through the system, and, when necessary, get approvals, according to the organizational policies and processes. A proper e-Procurement platform automates that process, simplifies the m-way matches and comparisons and classifies the spend for easy analysis. It enforces a process that saves money, it doesn’t save money out of the box.

And maybe when the academics realized this, and that they were writing about a solution which had no inherent sorcery, they dropped it like a hot potato. Even though there are dozens of companies that have went on record saying they saved millions with proper platforms (which saved them millions because they implemented, and supported, proper processes).

E-procurement benefits … fact or fiction? Part II

Today’s guest post is from Tony Bridger, an experienced provider of Procurement Consulting and Spend Analysis services across the Commonwealth (as well as a Lean Six Sigma Black Belt) who has been delivering value across continents for two decades. He is currently President of UK-based TrainingWorx Ltd, a provider of a wide range of Procurement and Analytic business training programs (inc. GDPR, spend analysis, project management, process improvement, etc.) and focussed short-term consulting solutions. Tony can be contacted at

In our last post we noted that it has been difficult to find anything recent in the academic world on e-procurement.  Independent academic research appears to have started to fizzle out from 2007 as the e-procurement technology wave passed and moved on – as most technologies do eventually.  However, e-procurement software vendors are still going and new development companies still seeking a new angle – despite the fact that many e-procurement systems, and concepts, have proven notoriously difficult to embed in to the culture of organisations.

We can hypothesise and speculate on some of the reasons for this:

  • E-procurement has often been touted as the panacea for all procurement department ills. Stops maverick spending, controlled approvals and extensive workflow;

This is correct to some extent.  However, this focuses on a small slice of spend (i.e how much of procurement effort is actually spend under management?).

  • Many procurement teams write large contracts but rarely take the time or effort to check compliance to contract. No one ever said that vendor catalogues and associated pricing were always correct and accurate.   Automated PO processing cannot fix compliance if the core vendor source catalogue pricing is simply wrong;
  • Spend analysis is still lacking as a core skill in many procurement teams – so validation and compliance checking of pricing to invoice compliance still seems to be a low priority agenda item. Therefore, e-procurement provides no better protection for contract compliance than any other process in many cases.
  • The generic nature of indirect spend activity remains in many cases. Simply, this means that in some categories, the variation in process to specify, order and pay means that a “one size fits all” process platform simply will not work.   There are Purchasing cards and a range of other specialised P2P options available – but the advent of products like SAP Fieldglass for temporary labour and service time recording has started to erode the value of e-procurement investment in some categories.   All-encompassing e-Procurement capability is simply being picked off at a category level.    The purists will argue that it should all be on one system.  However, the pragmatists are busy creating applications that deliver value.

Could it be that e-Procurement has simply passed its apogee?    Perhaps.

However, do problems with purchase to pay in many organisations simply reside with procurement cultures?

There is little or no doubt that many procurement departments see the entire gamut of purchasing activity as their domain to control.   Many procurement executives still initiate major P2P investment projects on the basis that this will provide an entire control platform – and that business teams will simply comply.    That assumption is flawed as many imposed P2P initiatives run counter culture and are doomed to fail – or at best simply ignored.

It can also take time to set vendors up on e-procurement, maintain workflow using cost centre files, approve POs, set spend limits etc.   There are many variations on a theme in the e-Procurement space – many systems will now claim to resolve a range of category-based issues.   However, many business unit buyers have considerable market knowledge, good commercial evaluation skills and translate their domestic purchasing skills in to the workplace very effectively i.e.  specify requirements, create opportunities and evaluate responses from multiple suppliers – and place an order.   They also can save companies money.   As the old Chinese proverb suggests, “give a person a fish, feed them for a day, give them a fishing rod, feed them for a lifetime”.

It may simply be that the majority of e-procurement platforms are designed, in many cases, to pander to the notion of total control desired by procurement teams – not commercial pragmatism around the way the purchasing and business world really works.  A mystery for sure.

However, there are alternatives.   The question is … is anyone looking?

Thanks, Tony!