Category Archives: Best Practices

Don’t Forget The Big Four Questions to Ask During Any Mega-Acquisition

Four years ago, during the last big M&A Frenzy, SI published a post on The First Four Questions to Ask During Any Mega-Acquisition, that is still just as relevant today as it was four years ago.

And while it was direct, it’s a good idea to be direct because sometimes you need to let the vendor know you’re not in the mood for any shenanigans and if they bought your former vendor for the sole purpose of playing such shenanigans with you, you’re ready to walk (and execute that change of control agreement in your contract tomorrow).

1. How will you screw us over on price?

As we said before, every acquisition brings with it the promise of economy of scale and lower price, but it typically takes years to understand and take advantage of platform overlap, redefine responsibilities and organizational boundaries, and identify staff re-assignments. And since, in the interim, change management experts, process consultants, and other resources need to be brought on board, overhead goes up and costs go up accordingly.

Or, the mega vendor bought your vendor just to retire its solution and migrate your vendor’s client base to its more expensive solution. Even if the solution is superior, it’s not necessarily superior for you and you don’t necessarily want it or the higher price tag.

2. How will we get screwed over on quality of service?

As we said before, the biggest fish in the combined company gets the best resources. And even if your current organization was a big fish in the old company, that does not mean your company will be a big fish in the merged company. Your company might just be a medium sized fish that gets the “B” Team, if it is lucky.

The fact of the matter is your current support team could be re-assigned or let go, the new team might not know anything about your solution, and without the current team your service levels might not be met. And make sure to point out the service levels the new vendor is committed to during the conversation so both parties can be on the same page about expectations from day one.

3. How will we get screwed out of innovation?

As per our last post, will the merged company continue to develop the platform your company is dependent on or will you remain locked in to a multi-year deal as the technology platform you bought withers and dies?

If the company is not going to support the platform, make sure that they are aware of the “full data export in standardized format” clause you included in the contract (and that you expect it to be honoured when the time comes) and that you expect full integration support so you can augment what you have where your platform is lacking.

4. What new and interesting ways will we get screwed in the future?

What additional layers of complexity and confusion will the new, combined, legal team try to weasel into the contract renewal and how will that bite your organization in its backside down the road?

Longer contractual terms? Non-disparagement clauses? No ability to discuss platform shortcomings when trying to find a best-of-breed solution to plug the holes. No ability to buy a non-vendor module when the vendor has one. And so on.

Not every mega-vendor is out to screw you, but make sure from day one that they’re not and that you are on the same page.

And yes, this is confrontational.  But sometimes you have to stand up for yourself.

Dear Procurement: You Aren’t Nearly As Advanced As You Think You Are

One of the best presentations at Ivalua Now Paris last week (which the doctor summarized in a post over on Spend Matters UK on how the conference was A Huge Success and a Testament to their growth) was Duncan Jones’ presentation on Successful Procurement Transformation that summarized a recent survey on enabling smarter procurement that clearly proved what the doctor and other leading analysts already know: most Procurement organizations believe they are considerably more advanced than they are.

The survey asked Procurement departments to rate themselves as beginner, intermediate, or advanced. The results, which, unfortunately were not unexpected, indicated that:

  • 65% of respondents said they were advanced,
  • 31% said they were intermediate, and
  • 4% said they were beginner

When the reality is that, according to Forrester

  • 16% of respondents are advanced
  • 24% of respondents are intermediate
  • 60% of respondents are beginne

On the Forrester scale which, by the way, is not as arduous as the scale used by the doctor (but we’ll get to that in another post). In other words, four times as many organizations said they were advanced as were actually at that level. So if you think you are advanced, there is at most a 1/4 chance you are advanced and at most a 2/3 chance you are intermediate or better.

This means that you as a Procurement organization need to take a step back, get a third party evaluation, and understand the reality of where you are. It’s totally okay if you’re not as advanced as you think you are because neither are your competitors. And, in fact, if you are willing to get an honest third party assessment and use it as the foundation for improvement, you are way ahead of your competition which still has their heads in the sand like an ostrich. Because, thanks to modern platforms and well understood best practices that can be efficiently experienced by efficient consultants who have been doing it for a decade, you can master intermediate levels of performance quite quickly, and that puts you in the top 40% in a very short time-frame. And it often doesn’t take a lot of improvement to see significant savings, process improvements, or value generation. (With many more tangible improvements to come as you embark on that first 3 to 5 year transformation journey.)

The key to advancement and tremendous success in Procurement is simple:

  • understand where you are
  • accept where you are
  • put a realistic plan in place for mid-term transformation (3-5 years) with well defined milestones along the way
  • commit to change
  • monitor, measure, and stay on track

Now that the best S2P suite providers can roll out enterprise implementations in a quarter, you can enable processes that lead to significant ROI in 6 to 12 months, and take it step wise from there. But it all starts with accepting the reality and committing to change. The system, the process, and your hard work will take care of the rest.

And a big thank you to Duncan to proving the reality!

Hi-ho! Hi-ho! The PO will never go!

Purchase orders have recently made the news big time, as a result of Amazon pulling the plug on thousand of vendors who suddenly had theirs cancelled.

And while this story isn’t about the latest Amazon media mess, it is about the PO. With the increase in automation since the introduction of second generation e-Procurement / Procure-to-Pay platforms that could do automated m-way invoice matching to POs, goods receipts, or contract schedules, certain vendors have argued that the need for the purchase order is declining rapidly as there are so many other ways to validate an invoice or an order, especially if there is a contract, an expected fulfillment schedule, a database of agreed upon prices, and so on.

And while they are not needed in some well defined situations, they are still needed. As indicated in our piece four years ago explaining that the dream of Hi-ho. Hi-ho. It’s Off PO We Go! is a pipe-dream.

As we noted years ago, when there is no (master) contract, or in the case of services, no agreed upon rate table, how do you verify you are paying for the right goods from the right supplier at the right time at the right amount!

Now, it’s true you won’t need it for everything that is not on a (master) contract — a T&E expense, an invoice for off-contract services under a threshold, MRO products being delivered at the previous, accepted rate, etc. — but this is not the majority (by dollar value) of the off-contract organizational spend.

Furthermore, as the prophet clearly highlighted in a Plus+ piece last year on Spend Matters [Membership Required] The Consequence of Eliminating Purchase Orders, the results of this can range from errors and mistakes to outright fraud, either supplier-driven or internal.

You see, if there isn’t another document with all of the information needed to verify an invoice, the supplier could accidentally, or maliciously, charge the wrong price. And if it’s for a new SKU, with no prior price, there’d be no way to even flag that maybe, just maybe, the invoice should be manually verified before being auto-paid.

So even if you took all of the great advice that the prophet gave you, which allows you to minimize situations where you need POs, and enable better purchase controls, implement better e-invoicing systems, allow good suppliers to qualify for discounts or early payment, etc., you’re still at a much higher risk than if you simply create, and send, a PO which, guess what, like an invoice, could, and should, be electronic.

So, while the paper should go, the PO, and what it enables you to do, will never go. So implement the right systems so it’s auto-generated, auto-sent, auto-verified, and auto-matched in all appropriate situations and then you can almost pretend it’s not there. Almost.

4 Strategic Sourcing Mistakes Businesses Should Avoid Courtesy of the Strategic Sourceror (Re-post)

The best way to get out of trouble is to avoid trouble in the first place. In a recent blog entry, the Strategic Sourceror outlined four common mistakes that a company can avoid to minimize poor spend management and operational efficiency.

Overlooking the Importance of Supplier Visibility

Having a clear understanding of supplier practices is essential in evaluating the risks and possible sources of disruption that are inherent in sourcing partnerships. Blindly entering a relationship with a supplier may result in a procurement strategy that is misaligned with business goals, and this could result in slashed profits in the future. For example, the strategy could be high quality to support the brand, but the end result could be poor quality and the resultant impact to the brand from the high defect rate could result in lost sales and slashed profits.

Failing to Emphasize Results

Because Procurement resides in the back office, it is often tempting to think of it as a service function and not a driver of productivity and profit. It’s critical to focus on real, measurable, and substantial results and communicate the message to the rest of the business. Like any business process, procurement management needs to impact the bottom line. When it does, and the message is communicated, Procurement, unlike Rodney Dangerfield, will get more respect.

Overlooking Contracts

Without written contracts with specific language, businesses won’t have adequate protection if a supplier relationship goes sour. That’s why contracts should be reviewed by a corporate lawyer before being signed. But just getting the contract right isn’t enough. It’s also important to make sure the terms are followed, rebates and discounts are collected, and contracts are renegotiated and not allowed to go evergreen.

Permitting In-House Inefficiencies

An inefficient internal procurement process can limit firms’ ability to obtain the goods and raw materials they need in a timely fashion. Be sure to install the appropriate e-commerce tools that will help a company identify potential suppliers, execute RFxs, conduct auctions, optimize awards, and strategically manage the maximum number of categories.

The Value of Market Intelligence in a Down Economy

A decade ago we ran a piece on The Value of Market Intelligence in a Down Economy because it was a down economy near the end of last decade and many organizations were overlooking the importance of market intelligence at a time when it was needed most. (Because, when times get tough, organizations always cut the training budget first and the intelligence / consulting budget second, even though the only thing that will get the organizations though the tough times is their talent — which needs to be as educated and informed as possible to do the jobs that need to be done.)

But now that depression era economics are about to make a come back, SI believes its time to repeat the message in the hopes that you will do the right thing and make sure that, under no condition, do the limited market intelligence and training budget get cut when they are needed most.

Remembering that success in a down economy stems from smart sourcing, and that smart sourcing stems from intelligence, it should be pretty obvious how critical market intelligence is, but just in case it is not, let’s remind you that:

  • market cost data is market intelligence
    and without it, you don’t have enough data to know how much you should be paying (even if you have extensive should cost models because, guess what, those component costs need to come from the market)
  • expected supplier performance is market intelligence
    even if you have lots of historical performance data across your supply base, that doesn’t tell you how good a supplier should perform, just what would be better performance for your organization
  • expected product quality, lifespan, and consumer usage levels is market intelligence
    and you are only going to get so much data from your customer base, and none for a new product line under development

Plus, when you look at the big picture:

  • it’s not as expensive as you think it is
    since a lot of the data or information you need to spot trends and focus on the core issues and data points is low cost, and even expert advice at 5K a day is nothing if it saves you 50K of internal research or steers you toward a solution that helps the organization generate a 500K return
  • it enables supplier performance, and relationship, management
    which is key in difficult times — just look at the auto industry. When times get tough, the American automakers (that score dismal on the OEM-Supplier Working Relations Index [OEM-WRI]) all fail while the Japanese (and Korean), who cooperate and collaborate with their suppliers (and rock the OEM-WRI) always pull through
  • intelligence gathering is an iterative process
    not “one-and-done” and if you stop, especially when market conditions are changing constantly and could change drastically at some point in the near future, you can be blindsided by an event that could grind the entire organization to a halt

Market Intelligence is critical for good decision making – in good times, and bad. Especially in bad. It identifies risks before they materialize and insures that your contracts have appropriate risk mitigation clauses built in. It leads to savings and cost avoidance that would never be identified without it. And while it doesn’t always require multiple high six-figure subscriptions to analyst firms … it does require some spending to keep up with what you need, when you need it. But if you choose wisely, it will save you 5X to 10X what you spend or help you increase your value proposition by that amount.

So get the intelligence you need. Today.