Author Archives: thedoctor

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!

Domo Arigato, Mr. Roboto Patoron!

A decade ago, Sourcing Innovation published a piece on how Every Check Has a Cost which echoed a point made by Paul Graham that one of the big differences between big companies and startups is that big companies tend to have developed procedures to protect themselves against mistakes while a startup walks like a toddler, bashing into things and falling over all the time and, as a result, over time, gradually puts in place rules and procedures and associated checks and balances to prevent it from falling over itself, especially when the fall results in a mini-disaster (such as a contracted supplier going bankrupt).

Thus, as the company grows, it will invariably accumulate more checks, either as responses to disasters or as a result of hiring people from bigger companies who bring more checks with them for protecting against disasters which have not yet happened (and which may never happen).

But this isn’t necessarily a good thing. Unnecessary checks cost time to document,, implement, support, and maintain, especially if it’s for a situation unlikely to happen or a situation that, when it happens, will cost the company less than the cost of the check and balance it has to go through day in and day out. For example, like checking the references and solvency of an office supplies, furniture, or an off-the-shelf electronics provider. Who cares. One goes out of business, 10 more down the street.

Or mandating committee review and on-site demos for what should be a $10,000 piece of software. As described in our classic piece, the more expensive you make a sale, the more expensive that sale is going to be. If it costs a vendor $30,000 to sell you what should be a $10,000 piece of software, they’re going to charge you $50,000 — $10,000 for the software, $30,000 for the cost of sale, $5,000 for the additional support they expect, and an extra $5,000 to make up for the commissions they are losing spend all that time with you.

Similarly, it’s costly to have a manager check every purchase over $250 made by an employee just because someone decided that should be an arbitrary threshold.

Ten years ago we said review all your checks and balances and get rid of the ones that don’t make any sense or cost you more than they would save in the worst case.

But now we are saying don’t just get rid of those, get rid of ANY manual check that doesn’t add value the majority of the time — and replace it with an automated system check backed by RPA (robotic process automation) driven AI (assisted intelligence) that determines whether or not there is enough risk to warrant a manual check.

With good risk models, good training data (common situations when a “mandatory” check resulted in an approval, common situations where a “mandatory” check resulted in a denial, and exceptional situations where a “mandatory” check resulted in a request for more information by the approver), good budget/spend data, contract/catalog data (and preferred suppliers), and organizational hierarchies (with well defined roles), a system can not only easily map into (definite) yes / (definite) no / more information / forced manual review buckets and improve its knowledge of typical organizational purchase and approval patterns over time and reduce the number of manual checks to those situations that are truly risky or truly unclear. Which is, to be precise, the only time a check should be applied. (And over time, it will be able to suggest better and better check rules that help an organization understand what, and only what, it should truly be checking.)

And when you implement the right software to automate these mostly unnecessary checks (on the road to eliminating them), just like you can slowly take the foam off the table corners and the training wheels off the bike, you will grow up as a purchasing organization and, after finally finding a proper use for RPA and AI, you will say:

Domo Arigato, Mr. Roboto Patoron!

Be Wary of Marketplace Solutions for Procurement

Spend Matters is running a series on Marketplaces (Part 1 and Part II) because, sadly, they are making a comeback. Why does the doctor say sadly? Because Marketplaces were designed by (specific) point-of-sale sellers to serve end buyers. They were never designed as full-fledged solutions for Procurement Professionals.

And to understand that, we have to step back and understand what a marketplace is. Traditionally, a marketplace has been a physical area where a number of individuals with goods to sell gather together to present those goods to whatever buyers happen to wander through. And these goods can range from food items and bobbles through clothing and accessories to high end electronics and even personal transportation devices or animals and, literally, everything in between. And payment can be cash, credit, promissory notes, or other goods in trade. And it has been like this for thousands of years. All over the world. Persistent, temporary (one day a week), and transient markets still exist in every county to this day (although my American friends like to call them swap-meets and flea markets, for reasons that perplex those of us with more British and French sensibilities).

Now think about translating this to the online world. You’d essentially be putting together an e-Bay where anyone can sell anything to anyone, but in addition to having to support payment in every online currency imaginable, you’d also have to support promissory notes or offline trading of merchandise, and, of course, implement mechanisms to track that. Does any marketplace support this? No. But this is not the real problem you need to be wary of Marketplaces as a Procurement professional.

The real reason is that they are NOT designed as Procurement solutions. A Procurement solution controls the universe of what’s available, at what price, to who, and when. This is essentially an integrated managed catalog solution. Now it’s true that modern Marketplaces are beginning to support this capability and allowing Procurement organizations who license an instance of the marketplace to restrict the catalogs, items, and have approval over the items and prices before they go into the catalog, but this isn’t really a marketplace, as sellers have limited control, no ability to negotiate, and no ability to provide better offers dynamically. So while it is more of a Procurement solution, it’s not really a marketplace.

Then there’s the issue that Procurement strives to use existing inventory and buy off of contracts, not from marketplace items, so you need a solution that will not allow a non-contract item to be bought when a contract one will do. Furthermore, you also need to buy non-catalog items and services and track those too, and will the marketplace do that?

And then you probably have the issue that you need to make different catalogs and items available in different locations if you are global, and restrict them to those specific solutions — so in addition to buying rules (no off contract items when there is an on-contract one and budget enforcement), you also need multiple view restrictions (or virtual marketplaces) in that single instance.

And then there’s the fact that you don’t typically pay item by item, you typically pay in bulk or monthly, as per a contract, or pay through another system. So you need more advanced accounting and payment tracking than will be found in a typical marketplace. And so on.

So, dear Procurement, be wary of a vendor that offers you a Marketplace solution for your maverick-spend or related Spend Management woes. Most of the solutions, which were really built for B2C, are not yet where you need them to be for B2B.

One Hundred Years Ago Today …

The UK began its effort to leave the dark ages with the first general election where women were permitted to vote and the first woman was elected to the Commons.

If only it would finish its exit of the dark ages in Procurement, which, sadly, in many organizations is still controlled by white males in their fifties.

While the doctor does not want to be stereotypical, he does want to be realistic — Procurement is simply better when there are multiple perspectives (and skills) at the table. And without the second gender, you’re clearly leaving half the perspective and skill off of the table (and that is simple, irrefutable, math).

M&A Mania – Will it Ever End?

As per our posts on Sourcing Innovation earlier this year, the M&A Mania has been in full swing for the past couple of years, and as per the acquisition news that came out Monday, it seems the mania hasn’t abated. But will it abate in 2019?

We hope so.

Sometimes M&A makes sense, but sometimes it’s too much too fast. The theory behind M&A is that it’s easier for the customer to have all the related solutions under one vendor’s roof than three, four or six when they need to build an end-to-end S2P support solution than to have to deal with six vendors when they have integration issues, support issues, or system errors.

It’s a great theory, but it doesn’t work any better in practice if all a vendor is doing is buying up smaller vendors to sell them under one roof. If all of the development teams are separate, all of the product management teams are separate, and all of the support teams are separate, you’re still trying to sync with six different groups in order to resolve integration issues, support issues, or system errors. What difference is it if they are under one roof, three roofs, or six? From your perspective, none at all!

The reality is that it doesn’t help you as a Procurement Practitioner at all if the solutions aren’t integrated, and we don’t just mean data-based end-point integration — where it’s easy to push data out of one tool and pull it into the next. It has to be a deeper integration that integrates process and workflow. And that type of integration doesn’t happen fast. It takes many months in the best of cases, and many years in the worst.

So when a vendor goes on a buying spree, without forethought as to how it’s going to integrate all those solutions into a cohesive platform in a reasonable amount of time, it’s just bringing the integration and support nightmare for its clients under one roof, and not adding any value.

The best M&A is when a company buys a company with a great complementary solution and then steps back, takes the time to get the teams fully integrated and the solution integrated at least at the process level with its solution (not necessarily deep workflow configuration but more than just end-point data integration), and only then thinks about the next acquisition.

Right now the big players have made so many acquisitions that the doctor thinks they are all at full capacity to manage integrations, and in a couple of cases, maybe beyond. So he certainly hopes that the M&A Mania winds down, at least until there is settling across the space.

Plus, any company that acquires too many solutions too rapidly puts itself at risk of acquisition by someone bigger still. Just look at what happened to CA Technologies — the Acquirer became the acquired … by a hardware company! The last thing we want is a big S2P play to be acquired by a big hardware or generic platform vendor that doesn’t understand the space.