Author Archives: thedoctor

A New Year of Procurement Events Is Almost Upon Us. Time to Get Ready for the Next Round of …

Bullshit. (Cafe Press wants to sell you a cap. We have no affiliation, but we like this cap in particular.)

SI has already logged over 50 Sourcing and Procurement events for 2020, and it hasn’t even tried to list them all! There is not that much new stuff to talk about every year (and, to be honest, it would be difficult in some years to fill just one 3-4 day event with all new material), so you know what that means. Either:

  1. Replay the skipping record. (The Bird is the Word, after all!)
  2. Resuscitate some long dead hype (which is probably a reality after a decade or two, but old news just the same).
  3. Talk about some “future” development that is so far off in the future that it’s totally useless to anyone who is attending the event.

In particular, get ready for a year of:

  • Community Themes: we know community intelligence is incredibly useful across S2P (market price intelligence, supplier performance, best practices, group buying, etc. etc. etc.), but we need more practical implementations today
  • Automation: after all, two decades old technology will likely get confused with AI if there are enough embedded rules, right?
  • Procurement 4.0: we only started the 3.0 journey about 3 years ago with the appearance of the first S2P suites … it will likely be at least 5 more years before we see the full realization of Procurement 3.0, and before anything appears with the first hints of 4.0 functionality (and there’s no way your C-Suite is waiting 5 years for a return on investment)

And now you know why the doctor doesn’t go to many events. As for you, the best events are, to be honest, typically vendor events that have multiple streams with educational material (from peers) appropriate to where you are in your Sourcing and Procurement Journey. There will be one or two decent events each year where a lot of the content will be relevant, new content, based on where we are now, but a lot will be the same old same old. So choose your events with care, unless you like the broken record (and still think The Bird is the Word!)

What is that Platform Worth?

That’s a question you really need to be asking before you sign on the dotted line. Because platforms are getting more expensive than ever. As a result of big companies gobbling up smaller companies at high multiples, their investors are pushing them harder and harder to get profitable returns on the investments fast, and since a company can only sell so fast (because cycles are long and it only has so many sales people to purse them), the only way it can satisfy its investors is to up the price.

Now the vendor will justify the increased cost as a result of the increased value it can bring with the new acquisition(s), and while the new acquisition(s) will definitely have value to some customers, they may not necessarily have value to you … or at least not in this stage of your development. if the acquisitions require a certain degree of maturity in your Procurement organization in order for you to obtain value from them, and you won’t achieve that level of maturity for at least three years, paying for it since day one because it’s “part of the platform” is not going to buy you anything.

You need an ROI, and while it’s perfectly valid for a provider to price on an ROI model, it’s only okay for you to pay if the ROI model is one that you can achieve based upon your current processes, level of organizational maturity, manpower levels, change management capability, and buying profile.

The ROI most providers are promising is not an ROI that is achievable by an average organization until they realize best-in-class performance, and for the average organization committed to that journey, that’s five to eight years in the future.

So, before you take a vendor’s word as to what the ROI is, ask for their assumptions and do your own internal assessment. You’ll likely only realize a fraction of the promised ROI in the first year, and it will likely be 3 to 5 years until you realize the majority of the ROI being promised to you.

So the “worth” of the platform the vendors are promising, especially in the beginning, is a lot less than you might think … so be sure that the platform is priced accordingly, and key features rolled out incrementally, so that you do realize value year-over-year.

We’re Still Not on the Side of Majority … And That’s a Damn Good Thing

Three years ago we reminded you of one of Mark Twain’s most insightful sayings:

Whenever you find yourself on the side of majority, it is time to pause and reflect.

The majority is still happy with the status quo. Still accepting the word of Gartner as Gospel. And accepting the word of vendors that they have a fully functioning, value-generating, feature-complete 3.0 Procurement platform and well on their way to the 4.0 Procurement platform that they’ve been hiring experts to talk about at all of their events over the last year (when nothing could be further from the truth).

That’s why the doctor is pushing forward with Spend Matters on Solution Maps — the only maps in the space that are bias free. The analyst rating is 100% tech weightings on a well-defined scale to beyond market average. The customer rating is 100% unbiased customer ratings as the analysts don’t talk to the customers filling out the surveys (at least not until they’ve filled the surveys out). (Psychologists have proven the way you ask questions leads the customers to specific biases in their responses and scorings, and we avoid that with out methodology.) It doesn’t mix six different measurements, half of which are completely subjective, on an axis like other analyst reports.

That’s also why the doctor still has sponsorships suspended — he won’t entertain any pay-to-play relationships and he’s not about to abandon the educational goals this blog was started on. He’s slowed down a bit, but that’s just because he’s waiting to see how the market is going to shake-out as a result of this M&A frenzy and how you will have to adapt your processes and strategies to be successful. (In the interim, the vast majority of the 5,600 posts in the archive have education that is still as relevant as ever.)

So, for now, just hold tight

Virtual Procurement Centers of Excellence: Will We Ever Realize Them?

Three years ago we told you that Virtual Procurement Centers of Excellence where The Next Level of Complex Direct Procurement and that your sourcing platform should enable this.

But it’s three years later, and we still only have a handful of S2P platforms that can properly support bill of materials for direct sourcing. (In fact, you don’t even need all your fingers!)

Add this to the fact that either ERP integration is minimal, that support for modification and should-cost modelling is limited, or there is no support for integrating price indices or market intelligence, and it’s still a pretty sorry state of affairs.

Especially since true value is only going to be realized not only with proper insights into bill of material costs, but what the bill of materials should look like. (Maybe the steel being used is inferior, the rare earth metal component could be reduced with a better design, etc.)

In other words you need a platform that not only supports full ERP integration, BoM modelling and management and deep should-cost modelling but also up-to-date market intelligence. This should not be limited to commodity feeds (as these are not global or available for all commodities), but should also use community intelligence, especially around labour rates and energy costs in a region.

But we only have one S2P platform with real budding community intelligence, and it’s support for direct is relatively non-existent compared to some peers.

So the question is, are we ever going to realize them? For all of the reasons we gave three years ago, and then some, we need Virtual Procurement Centers of Excellence for Direct, backed by Market and Community Intelligence, but they still seem to be in the distant future.

So what do you think? Are the current S2P players going to up their game to where we need them to be? Or do we need a new breed of players to come out of the shadows and show the market what is needed.

Still No Single Starting Point for Your Supply Management Journey!

Just as there is no one platform and no one workflow for Supply Management, yet alone even S2P (although the vendors claiming to have such seem to be increasing by the day) — and the only way to make progress is to define the core workflow, identify a set of overlapping/integrating systems to achieve the core workflow, identify vendors that can provide these systems — with enough configurability to allow you to support the necessary variances, and then select those vendors that best meet overall organizational needs and move forward — there is no one starting point.

The starting point, with the ever increasing complexity of systems, processes, and global supply chains, is more organization dependent than ever. One has to take all of the following questions, and corresponding answers, into account … and more!

  • What does the organization have now for systems and processes?
  • Where is the organization in its Supply Management journey?
  • What is the talent profile — what is its average and collective IQ, EQ, and TQ?
  • What are the organization’s biggest pain points?
  • What are the organization’s top pressures?
  • What is the organization’s budget? Can it be extended? Leveraged?
  • What resources does the organization have available to support implementation and change management?
  • What resources and programs do its current, and prospective, vendors have to help?
  • What professional organizations and associations can it lean on for support?
  • What leading research and advice can it access?
  • And so on.

It’s tough. Typically, an organization makes the jump when it’s desperate to get savings, and typically, when doing a systems buy, the organization will focus on the system that is advertised to identify the biggest return. In Supply Management, that’s a true strategic sourcing system that supports complex sourcing as only decision optimization and spend analysis technologies have been repeatedly found to identify year-over-year savings in excess of 10%, with everything else being single digits. (This system will support complex sourcing workflows, decision optimization, and at least industry average analytics as well as a solid supplier master / SIM capability. Contracts can be external.)

But identification is not realization. In an average organization without the proper processes and systems to support contract implementation, as per a classic AMR series on reaching sourcing excellence, an average organization will only capture 60 cents to 70 cents of every dollar of negotiated savings at the end of the day.

If the organization is not set up to capture savings, it has to start simple. Processes. e-Procurement/I2P. SRM to get suppliers on board with processes and programs that will allow it to capture data and insure the suppliers deliver the value they promise without constant monitoring by the buyer. If the organization is set up to capture savings, but can’t identify any, it has to look at more complex platforms or options. However, regardless of the answers to the above questions, it should start simple and work it’s way up the technology and process complexity ladder. The key to success will be adoption, and that will mean not overwhelming those that will be required to adopt the new systems and processes if success is to be achieved.