Monthly Archives: October 2019

7 Sourcing Secrets Everyone Should Know By Now … Part II

… but don’t, because if they did, Source-to-Pay would be ubiquitous across the space.

As we noted yesterday, if you’re a long-time reader of SI, you can skip this post because you already know it all. But if you are a new reader, and haven’t scoured the archives yet, this post is for you — to help get you up to speed fast on what you may not yet have discovered in the extensive archives you can find right here on SI.

Yesterday we covered the first four “secrets” that shouldn’t be secrets anymore. Today we cover the last three.


5. Contract Management is just a new name for document management with integrated monitoring, it’s not a replacement for contract managers — and definitely NOT a replacement for lawyers!

Lately I’ve noticed how contract management is coming into vogue … again. And while that’s a good thing, it’s important to understand what contract management is and isn’t because it seems that some vendors, and some publications, are promoting the new offerings, with automatic clause identification and suggestion, as the latest and greatest tools to solve all your contract woes when the reality is that these tools are nothing more than document management tools with monitors, alerts, and contract templates that can swap out versions of a clause based on industry, geography, spend level, and identified risk.

We won’t deny the importance of having a good contract management tool that can monitor expiration dates, contract pricing, and, most importantly, invoiced pricing against contracted rates, but these tools, even if they contain sophisticated contract creation and clause identification capabilities, can’t replace a contract expert, a master negotiator, a trained legal professional, or a good spend analysis tool that can uncover devious work-arounds by less-than-reputable vendors looking for a way to make back that buck they gave up in negotiations. (For example, we still hear from consultants to this day who tell us how, ten years later, they find that some office supply management vendors still regularly changed SKUs to bill you twice as much for that pen as it’s really worth — as most of their customers still haven’t caught on.)


6. e-Procurement is tactical, and not a substitute for e-Sourcing

There’s still a lot of confusion in the marketplace between what is e-Procurement (and how it relates to I2P, P2P, EIPP, and the other new acronyms old players are coining to differentiate their new, streamlined, offering) and what is e-Sourcing, even though it should be fairly clear cut (as the doctor outlined over a decade ago in this post on why it’s sourcing and procurement). A few of the e-Procurement vendors are even claiming that you don’t need sourcing at all if you use the wisdom of crowds (which is not the case because there’s a big difference between a great deal on a commodity office supply and a great deal on raw cocoa or custom circuit boards, which are not commodities), market intelligence, and automation. Sourcing is the strategic part of the purchasing cycle, procurement is the tactical. You need both, and one is not a substitute for the other.


7. It’s not what you know, it’s what you can learn!

Plain and simple,

  • it doesn’t matter if you’ve been doing it that way for 20 years if it’s not optimal,
  • shift happens, and
  • whatever happens, the world of tomorrow will not be the world of today.

You have to keep learning. That’s why this blog is here to help you.

7 Sourcing Secrets Everyone Should Know By Now … Part I

… but don’t, because if they did, Source-to-Pay would be ubiquitous across the space.

If you’re a long-time reader of SI, you can skip these posts because you already know it all. But if you are a new reader, and haven’t scoured the archives yet, these posts are for you.

Even though most of the time the doctor gets to interact with people who’ve been there, done that, probably failed because they were using an older, insufficient, product, sometimes someone comes along who’s never really had real tech in one or more areas and the obvious is new. And since new readers still stumble on SI, it’s important to get them up to speed … fast. So, here goes — because you really really really should know the following “secrets” that, after more than a decade, should not be secrets anymore.


1. e-RFX is electronic support for the full information and quote gathering cycle, not just bid collection

If all your e-RFX does is allow you to collect bids, it’s not e-RFX. It’s e-RFQ, and a poor e-RFQ at that. It should allow you to create questionnaires, surveys, and entire RFX packages with closed and open-ended questions, allow you to compare responses side by side, and allow you to collect not only all of the pricing, but all of the discounts, rebates, and promotions the supplier offers. It should help you manage the process, guide you through it, engage with your entire team, and support data import and export in open formats so that you can also use analysis, optimization, and contract management tools.


2. A Reverse Auction is simply an online auction event, it’s not a substitute for proper sourcing project management

We follow the space closely and not a month goes by where we don’t see an article on how Company XYZ is now refusing to participate in online auctions or company ABC no longer wants to use them because they got poor results or inflated costs after the award. When you dig down, this is because the supplier had a horrible experience or the buyer didn’t properly qualify the supplier or the product/service requirements. When you dig deeper still, you find out it is typically either because Company ABC simply threw an auction tool at the supplier and told they had to bid through the tool or lose all their business or Company ABC threw up an auction tool and said they’d award to the lowest bidder and either bought a product that wasn’t qualified to meet their needs or ended up ignoring the auction result and going with a different supplier, usually the incumbent, after the auction closed.

We find this appalling, because e-Auctions, like e-RFX, are not only a great time saver, but a great way to bring parties together from around the globe and allow them to participate in an e-Sourcing event that, when run right, is more transparent, educational, and profitable for all parties concerned than traditional methods of sourcing where you get bids by phone and fax until you find three bids you like and then meet in a room to “negotiate” until a deal is struck with a winner – especially for a commodity, low-dollar, and/or non-strategic category. (And we use the term “negotiate” loosely because old style purchasing methods usually boil down to the party with the most leverage beating up the party with the least leverage.) But this is only true if the event is run right. This takes proper project planning and management. Tools can facilitate the process, but they can’t replace it.


3. (Strategic Sourcing) Decision Optimization is for everyone, not just for math geeks!

We’ll admit this is the doctor‘s personal bandwagon, but having seen savings of over 40% and ROIs of over 400 on a number of projects, and average savings in the 10% to 20% range and average ROIs of 5X to 10X or more, the doctor knows he has a good reason for riding it. Despite the fact that true self-service decision optimization for sourcing has now been around for almost two decades, it’s still the “black sheep” that almost no one uses — and it’s a real shame because now is the time you need it most. Furthermore, the new tools coming out of the leading providers are not only a lot more usable than the first generation tools, but they are also more usable then second generation tools, and can be easily used not only by an college graduate who can build a cost model and specify some business constraints but by any high-school drop-out that can follow a workflow (as they allow the college graduates to build category and event specific templates that anyone can easily follow). In other words, if you have the pre-requisites for strategic sourcing, you can use these tools to save time, to save money, and make better, more informed, decisions.


4. Spend Analysis is flexible Data Analysis, not canned reports on a data warehouse populated via automated classification

Real spend analysis is the ability to dive into your data and find out not just where your true spend is higher than it should be, but why. This requires you to have the ability to slice, dice, and cube your data on any dimension you can think of, because you’re never going to know where the losses are until you find them. (After all, if you knew where your holes were, wouldn’t you have plugged them already?) Canned reports on a static data warehouse can only tell you how fixes you’ve already implemented are working, not where the holes are. Furthermore, “automated classification” (which is not the same as automatic classification rule suggestion) just doesn’t work. Any good consultant worth his salt can load your data into a real data analysis product and find two dozen mistakes in twelve minutes. You need the ability to define and redefine mapping rules on the fly as all automated classification can do is fix previously identified mistakes. It can’t identify new ones. Software isn’t intelligent (despite all the voodoo claims out there). People are (at least until we blindly trust the machine).

Come back tomorrow for Part II!