Monthly Archives: January 2019

The Risk Disconnect is Still Big But …

As pointed out in a post a year ago on how there are at least 12 risk disconnects … but one you should never overlook! we talked about how the disconnect between risk and cost is one of the most critical in our view because:


  1. not only can one identifiable supply chain disruption wipe out all of the savings of a single sourcing event, but also increase costs well beyond that point

  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 (imminent) (potential) loss is the one thing that gets noticed

But that’s pretty hard as most sourcing and procurement solutions not only have no concept of risk, but neither do most platforms. And many of those that do are pretty basic — you can import third party risk scores, define risks to track, and query them occasionally. And that’s about it — and that is clearly not enough given that an organization’s chance of experiencing a significant disruption is now about 90%.

But that might change soon. Not that long ago (in late 2017 to be precise), Spend Matters released the Solution Maps for Strategic Procurement Technologies (Sourcing, Contract Management, Analytics, and Supplier Management) were released — with the Sourcing, Analytics, and Supplier Management maps designed (in entirety) by the doctor and the Contract Management map co-designed by the doctor and the maverick.

Each of these maps had a few elements of risk, but not many. And they were application-based, not platform based. But with the newly revised Solution Maps coming out in June, Risk Management will now be a key component of the common sourcing – supplier management component of the strategic procurement technology maps that measures the assessment, mitigation planning, [risk] model definition, monitoring & risk identification, regulatory compliance monitoring, and supplier risk management capabilities of the platform. Going forward, both Spend Matters and Sourcing Innovation will be putting a greater focus on risk management capabilities to help your organization cope with the turbulent times ahead.

2020 is Less Than a Year Away. And we still haven’t crossed the supply chain plateau. Part II

In yesterday’s post, we referenced a post from six years ago where we commented on a piece by the Supply Chain Shaman who believed we had reached the supply chain plateau. And while we do not agree that the plateau has been reached, despite the extensive objective analysis of balance sheets, we certainly agreed that progress was, and still is, stalled.

We also referenced our post from a year ago today, where we asked will this be the year we traverse the supply chain plateau, that we believed the root of the issue was manpower capability. And we conjectured the root of the issue was a lack of education. But good information, good training, good consulting, good peer groups, and good courses — while still few and far between — have been available for years now but there has not been much improvement in the overall education level and manpower capability.

And while it’s true that most Supply Chain / Supply Management / Sourcing / Procurement / etc. managers don’t leave college or university with a solid supply chain background, as few institutions offer such programs, with the right foundational program in STEM (Science, Technology, Engineering, and Mathematics), the fundamentals of supply chain can be rather easily taught to intelligent and capable STEM grads.

So why aren’t they properly trained — especially when there are professionals out there more than capable of training them? And while supply is scarce, and they command top consulting dollar, when you think about the ROI a top performing team can deliver in just a few weeks (which can be in the millions), even a top dollar trainer can deliver the organization a ROI 10 to 50 times her price.

Well, because at the end of the day, management is not as well-intentioned as the Shaman or the doctor gave them credit for. Or, more accurately, their good intentions are more focussed on what’s good for them or their management peers today, not what’s best for the organization (and, at the end of the day, the shareholders) over the long-haul.

That’s why, year after year, when dollars get tight, the training budget is the first to get cut. Management believes that when times are tight, spending should be cut, and rushes to be the first to cut their budget to look good in the eyes of the CFO and CEO. Instead of investing today to take more off the bottom line tomorrow, they take the short-cut to look good today.

Instead of going over budget and buying a modern, 3rd generation, S2P platform, they cheap out and buy a first generation or low-cost, low-capability, second generation platform with limited capabilities that limits the eventual performance gains the system can provide to one that barely makes sense. A 3x ROI with an average 2% to 3% savings vs a 5X to 10X ROI with a 5% to 10% savings.

Instead of owning up to their own incompetence and own short-sightedness, they hire analysts and consultants to do market assessments and find ways to blame the market, the supply base, the systems, or even the staff instead of themselves.

In other words, we haven’t reached the plateau yet because less-than-well-intentioned management won’t do what is necessary to hire and elevate the organizational manpower to the skill levels necessary to scale the walls that surround the plateau and hide the even higher plateau blocked from view.

And while this is a dark and dreary view, what other reason could one give?

2020 is Less Than a Year Away. And we still haven’t crossed the supply chain plateau. Part I

Six years ago tomorrow we commented on a piece by the Supply Chain Shaman who believed we had reached the supply chain plateau. This was based not on a gut feeling, but on an objective analysis of balance sheets of process companies over the course of a decade. The result: the average process manufacturing company has reached a plateau in supply chain performance. As bluntly stated:

Growth has stalled. To compensate and stimulate revenue, the companies increased SG&A margin by 1%. However, the conditions were more complex; the average company, over the last ten years, experienced a decline of 1% in operating margin, and an increase in the days of inventory of 5%. While cycle times have improved, the majority of the progress has come from lengthening of days of payables and squeezing suppliers.

And while SI still believes, as it did last year, that we have not reached the plateau, SI believes that growth is still stalled. As the Shaman conjectured, complexity has increased, but many well-intentioned executives still lack the understanding of the supply chain’s potential or how to manage the supply chain as a system. So while select projects in the hand of gifted buyers, departments as a whole are not performing as well, and often being managed even worse.

The core problem has not changed — manpower capability has not kept up. While leading vendors are building assisted intelligence technologies (and a few are experimenting with augmented intelligence technologies on the way to delivering cognitive, almost AI, experiences), the average organization, if they are lucky, are running on first generation Sourcing and Procurement systems from the early 2000s. And if they aren’t, they are running on spreadsheets and thoroughly outdated ERPs (as noted by the Supply Chain Shaman in the aforementioned article).

A year ago tomorrow we conjectured, in our post where we asked will this be the year we traverse the supply chain plateau, we conjectured the manpower capability issue was a lack of education. While the average practitioner is not educated enough, it’s certainly not a lack of education opportunities, so we’re obviously still missing part of the puzzle.

So what are the missing pieces?

Category Management Savings Drying Up More? Time to Cross-Strategize!

Last year we asked you in jest if category management savings were drying up, because we knew we were. We told you that the way to prevent this was to cross-source and cross-optimize across categories that can be shipped together from the same supply base. For example, while it might be logical to separate brass, bronze, and copper parts from a category management perspective, considering that some suppliers will likely supply parts across these categories (considering brass and bronze are alloys that contain copper), from a sourcing perspective it makes sense to source all three categories simultaneously. This way you can optimize logistics and negotiate additional volume discounts based on spend levels.

And this is still a great idea, but sometimes it’s not enough to achieve savings. Volume leverage is only one half of the equation, at the best of times. The other half is the strategy. Simply bundling additional volume and shipping it out for a bid isn’t going to do the trick if demand exceeds supply. Nor is putting a large volume up for an auction going to guarantee results even if supply greatly exceeds demand. Especially if the auction is not going to the right supply base.

The key is the right strategy for the right sub-set of the category. As the doctor penned in his series on AI in Procurement (Today Part I, Part II; Tomorrow Part I, Part II, Part III; and The Day After Tomorrow), and in his upcoming series on AI in Sourcing (over on Spend Matters Pro, membership required), it’s all about the right strategy for the right sub-category at the right time.

The key is, for each category product, service, or raw material, to analyze the state of the market and determine whether the best result is going to come from a catalog buy, a (3-bids-and-a-buy) auction, or a (multi-round) (optimization-backed) RFX and then slice up the category appropriately — then piece those slices together across related categories to get the necessary volume leverage to ensure savings in auctions, (optimization-backed) RFX events, or re-negotiations with incumbents. Just like there is no one-size-fits-all approach to categorization, there is no one-size-fits-all approach to sourcing events — even if everything worked the last time around. Markets change. Supply/Demand imbalances change. Buying power changes. Everything is in flux. And sometimes the third time is the charm … for your suppliers that can achieve a windfall at your expense.

Your Procurement New Year Resolutions

To save you time, the doctor has updated his short-list of the most important.

1. I WILL NOT READ PREDICTION ARTICLES

As the doctor has stated many, many, times, most predictions are old news or remanufactured shoes, as clearly explained in our long series on The Future of Procurement, where we tackled the same predictions you hear year after year after year and explained how some are, sadly, as old as commerce itself. Thus, there is no need to waste your time on them.

2. I WILL IMPLEMENT A BoB PLATFORM (FOUNDATION)

Last year we advised you to implement at least one new BoB Module or System, because, even if your organization is in the Hackett Group top 8%, the doctor can guarantee that there is at least one major Supply Management system or Source to Pay module you are missing (or lacking critical functionality in). In order to do a great job, you need a great system.

But, in addition to a great system, you need a great platform with a centralized data store and back office capability because the best system in the world is useless unless the right people are using it and everyone is working off of the same data and results with the access appropriate for them.

And very few organizations have a shared platform for S2C or P2P activities, and even less for P2P. And while the doctor encourages using BoB platforms as they can generate spectacular results when properly applied, those results need to be realized — which can’t happen unless the right employees can access the data in the applications they need to use. This means everything needs to be connected. This requires a platform.

Moreover, a platform with an open API, an open data store, and the ability to act as a master data store for all entities and transactions in the platform. Anything less is not a platform.

3. I WILL CONTINUE TO IMPROVE AT LEAST ONE TIME CONSUMING TACTICAL PROCESS PER QUARTER

There is absolutely no value in tactical work. This is where you hand over as much as you can to the machine that can do it faster, better, and cheaper than you. You can’t do millions of calculations and comparisons a second — it can. You can’t consolidate data from 20 different sources into a 20 page report in less than a minute — it can. Plus, as per the doctor‘s series on AI in Procurement (Today Part I, Part II; Tomorrow Part I, Part II, Part III; and The Day After Tomorrow) over on Spend Matters Pro and his upcoming series on AI in Sourcing over on Spend Matters Pro [membership required], now that assisted intelligence is widely available, and augmented intelligence is coming, there’s no excuse to do unnecessary tactical work.

Plus, as we clearly indicated last year, what you need to focus on is strategic work. Analyzing the top recommendations that come out of the Cognitive Procurement system to make sure they make sense, that the system didn’t miss anything, and that it works for your organization. And then figuring out if you have the experience and expertise to ignore a system market buy recommendation to go negotiate a better deal with top (incumbent) suppliers because your 20 years of insights gives you an edge that cannot be encoded. Or if the projected results from a market auction with the top 6 suppliers is better than your team would ever do with their complete lack of category experience. Your value is your ability to use your intelligence, not your ability to push paper. Let the dumb machines do that, and do what you were hired for!